Let’s start with a quick run through of the major indices, and as you will see, one of the themes for me this week which I didn’t think got as much attention as others, was the smaller you went the worse it got.
The Dow performed relatively well, down 1.6% on the week.
The Transports actually finished up 0.5%, a third straight weekly gain, but don’t get too excited, it just made back in three weeks what it lost in one, and is still 25% off its highs of over a year ago.
The S&P slid 3.1%, giving back the gains of the previous two weeks, and by the slimmest of margins finished at the lowest weekly close since May 2014.
The NASDAQ, Russell, and Microcap ($IWC) all fared even worse, slumping 5.4%, 4.8%, and 5.2% respectively:-
For the Russell and Microcaps, those are the lowest levels since the halcyon days of June 2013.
Here’s the Russell relative to the S&P:-
Whatever your timeframe may be, that’s one ugly set of charts. We’ve already seen one major rally attempt in the last couple of weeks, and there will be others, but there is no need to chase anything. If the bottom is already in, it could be weeks and months before you can know that for sure. No doubt many will try to catch it, but this is one train I won’t be stepping in front of.
What was interesting about Friday was although it was the end of a poor session and an even worse week, rather than going out at the lows there was still a rally attempt into the close, again stemming from an area of previous support around 1872.
You will probably see many versions of this chart this weekend as it’s becoming an increasingly obvious level of interest, and for those that like trading patterns it’s a reasonable head and shoulders formation too.
Whether you believe in the validity or predictive power of such things or not is irrelevant, it’s clearly an area which many others could be keying off and may trigger a reaction if breached meaningfully, and for that reason alone it bears watching.
With that in mind, one other thing I’ve noticed among short-term traders this week, was the apparent glee they profess when they see a combination of lower prices and people being bearish (imagine that!), as if it’s something to always fade. I wish I was as confident about anything as they are about their own omnipotence.
Now it would be very easy to just show this chart since 2009 and for your omnipotent daytrader to conclude he just has to buy the dip when prices sell off and those idiot active managers reduce their exposure. Easy money!
But that’s not the whole story. The market has changed. What they should be concentrating on is what happened prior to 2009 when it wasn’t a bull market. Any relief rally that followed a sub-22 reading was fairly short-lived. In some cases it didn’t rally at all, and in every instance lower prices eventually followed. It’s called a bear market, and we could be in one now. It doesn’t have to be as severe as 2008 either, but just be aware as the market environment changes, what may have worked over the last few years may not work anymore.
Trend persist, strength begets strength, weakness begets weakness. Oversold can be become more oversold, and crashes occur when the market is already extremely oversold. Let others take their chances. We’ll still be here when the market returns to more favorable conditions. They may not.
Utilities ($XLU) remains by far and away the top S&P Sector SPDR, it’s not even close, climbing 2.5% on the week, and over 7% above its 200-day MA.
Next comes Consumer Staples ($XLP), which remains the only other XL above its 200-day, but the cracks are starting to show. Having come close to hitting new highs on Monday, it gave back 2.5% over the rest of the week, with several names that previously showed relative strength starting to roll over.
Brace yourselves, because next comes Basic Materials ($XLB), Industrials ($XLI), and Energy ($XLE) which could get a nose bleed it’s been so long since it was this high up in the rankings.
That ranking may be surprising, and perhaps goes some way to demonstrate the kind of market environment we’re in, but for my timeframe even something that’s in a long-term downtrend but has started to show absolute and relative strength deserves a higher ranking than something making new lows.
Which brings us to the former highflyers club who are suddenly friendless; Technology ($XLK), Healthcare ($XLV), Financials ($XLF), and Consumer Discretionary ($XLY) which is now so bad it makes the banks look good.
Aside from the XL’s, Biotech ($IBB) hit new lows,
Real Estate ($IYR) and Semis ($SMH) gave back last week’s gains,
and unless you’ve been living under a (pet) rock, you’ll already know the big winner this week was the Gold Miners ETF ($GDX) which soared 20%.
Whether it transpires to be more than a transitory ‘safe-haven’ trade in a lousy tape remains to be seen. It’s coming off of a lengthy downtrend so if it has truly ended and a new uptrend is underway, there will be plenty of time to get on board. It will be interesting to observe the first attempt at consolidation, and maybe also keep an eye out for some “easy money’s been made” posts.
Alpha Capture Portfolio
Our portfolio is still 100% in cash, so it was unchanged this week while the S&P sank -3.1%.
YTD our portfolio remains -4.5% vs -8.0% for the S&P.
This week the biggest change in our watchlist is the deterioration in consumer-related names, as several of the food, beverage, tobacco and staples stocks which have been relatively strong in recent weeks, started to come under pressure. Some remain, but it’s clear they’re not immune to what’s taking place in the broader market.
Although there are still some business services and communications names on the list, there’s a notable lack of traditional consumer discretionary stocks, something we haven’t seen since beginning these reports. The new arrivals this week are not surprisingly in the precious metals space which surged higher. Also of note, but not quite making the list yet, there are some energy names working on bases and starting to look a bit more respectable.
Here’s a sample of 8 from the full list of 22 names:-
I’m looking forward to hearing and learning from the many traders he has lined up, and this month it was my turn in the hot seat. You can check it out here:- TRADER PROFILE – JON BOORMAN
Enjoy the rest of your weekend.