Institutions Continue Selling Stocks Into Strength as Few Leaders Breakout
Safety and preservation of capital continue to be our mantra, as institutions make it obvious that they are selling stocks into strength. Fewer stocks are leading or breaking out. And, those that do break out are defensive or considered safety trades.
Seasonality has yet to kick in and traditional winning sectors are weak. Retail, for example, led the markets higher, only to sell off as institutions took profits into earnings high flyers like Walmart. Therefore, we either move to cash or trade the strongest stocks from the leading sectors.
How can I find the leading stocks you might ask?
Leaders – IBD Industry Group Rank
Every day, Investors Business Daily ranks 197 industry groups and sorts them by performance. Curators of the listing watch which industry groups are moving higher and compare those stats with the industry group ranging from 6 weeks ago, then 3 weeks ago, and finally into the current week.
Leaders – Telecom Services/Wireless
Telecom Services and the wireless group are ranked number one this week.
Consider trading stocks from this group, as the charts of most of these stocks are moving higher in a weak tape. Thus, these particular candidates are exhibiting relative strength. They should move higher once the markets turn.
Verizon (VZ) Wireless
We have a position in Verizon (VZ) Wireless which exhibits relative strength versus weakness in the S&P500 (RS line rising = 94).
In addition, the volume is increasingly bullish. Sales and earnings in the left panel reflect a good choice. This metric is forecast to increase into 2019.
Finally, the last earnings announcement shows a 24% beat.
While the markets continue to exasperate the majority of investors, seasoned traders moved into larger cash positions in late September. We did the same.
As we near the Opening Bell, futures are weak again. Your choices are narrow. Either stay in cash or short weak candidates. If you choose to enter into the fray, be sure you are trading the strongest stocks in the leading industry groups.
As a side note, we are eager to see a major accumulation day (MAD) where 90% up volume signals institutions are back. Until we see that +9:1 day, it appears institutions continue selling into strength.
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*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities.
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