The Month In Review
Today
I will provide an abbreviated version of my normal month-end overview.Â
Even with the recent bounce, it should be obvious to everyone that January was a
difficult month for the stock market. There was selling almost across the
board. Technicals deteriorated. Risks increased. Potential long-side reward
decreased. Overall, a tough start for the year. So how do things look now?Â
Below are my observations:
Positive —
Too strong of a word for
anything I’m seeing.
Neutral —
New highs vs. new lows
— Breadth has deteriorated significantly. New highs are no longer swamping new
lows. Still, new lows have not yet begun to consistently outnumber new highs,
so there isn’t a true bias here currently.
Foreign Markets
— I probably could have listed this a negative also. Aside from a few outliers
like Singapore and South Korea, upside leadership is poor. Most markets have
sagged along with the U.S., and those that haven’t, are just trading sideways.
Sentiment
— Sentiment measures have begun to re-normalize after having been overly bullish
near the end of the year. There is no longer a strong edge being provided here.
Negative —
Accumulation /
distribution — This has been a blatant negative. The
moves lower have consistently had higher volume than the moves higher. Until
this changes, the market will continue to struggle.
My Shrinking watch
list — As breadth has deteriorated and the market has
sold off, the number of stocks making it through my scans has also declined.Â
There have been fewer and fewer stocks completing basing formations. A rally
from here would likely be quite narrow.
UUWNHI (Unofficial,
Unscientific, Working/Not working, Hanna Indicator) —
From a breakout standpoint, there have fewer breakouts and weaker follow through
than you would see in a healthy environment. Buying pullbacks has not been too
fruitful either, since the bounces have been weaker than the selloffs.
The major averages are all now
squeezed between their 50 day moving averages, which have begun to decline, and
their 200 day moving averages, which are still sloped slightly upwards.Â
Opportunities are scarce currently. A break below the 200 day moving average
could help to establish some more downside breadth and opportunities for
shorting. A move up will need to be accompanied by some accumulation if it is
going to be successful
Sector Action
Looking shorter-term, the most
notable sector action appears to be in the Semiconductors and the Drugs. The
semis have bounced higher than most other areas of the market. Â The SOX has now
made 5 higher highs and is up about 5.5% in the last 5 days. It could get tired
pretty quickly here. The Drugs meanwhile have missed the bounce seen in most
other areas and instead sold off — making a new recent low today. None of the
action appears too extreme just yet, but these are two sectors I’ll be watching.
Best of luck with your trading,
Rob
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