With yesterday’s battle many a perma bull was sitting at the edge of his/her seat through most of the session. Because the business of trading will lead to death by a thousand paper cuts unless one sees both sides at all times, let me point out both points of view for a moment.
Staying with tradition I am again kicking off today’s morning scribbler with the indispensable daily chart of the S&P 500. Yesterday’s close brought the index right down to my key support line in the sand of 1538, which clearly held on a daily closing basis – yes that’s the bull case.
The bears however are firmly pointing to a broken November up-trend…make that two daily closes below said up-trend now. Personally, I don’t particularly declare myself in either camp, precisely for the above reasons, but rather like to revert to the tape that is rather then one I wish for. Being positioned net short in a U.S. equities portfolio currenly, I still need my 1538 line to snap before adding to short-side bets. However, you can hang your hat on this; any constructive price action and I will quickly flip back to the long side again. Said differently, the ultra dovish posturing of global central banks will quickly teach you to respect the trend.
A look at the sector front of yesterday’s intra-day fray shows both healthcare and consumer cyclical stocks led the downside slide. These of course are two of the four sectors which I discussed in Monday’s piece here ( http://investorplace.com/2013/04/daily-stock-market-news-4-sectors-not-to-get-caught-in-during-the-next-correction/ ), that I would consider being the ones ripe for the best risk/reward moves lower given their steep slopes off the November lows.
A broader look at the universe of cyclical stocks shows us the Morgan Stanley Cyclical chart below. The November 2012 is long broken, which makes for lousy risk/reward for those looking to bottom pick such stocks. Sticking with high probability setups is the name of the profitable game, and those giddy to pick at cyclical names must exercise restraint until constructive price action flashes a buy signal. As of last night’s close, we are nowhere near a green flashing light.
In my two weeks of covering for Sam Collins I have yet to shed much light on the technicals of the Nasdaq 100 index…so, here it goes;
After also staging a breakout-fakeout in early April, the index as represented by the Powershares QQQ started breaking down quickly. Yesterday’s weak close broke a somewhat lousy looking up-trend, but broke it none-the-less. From here the direction of least resistance also looks lower and those interested in the long side would be wise to wait for a better bottoming formation.