Where are we headed short term? The truth is no one knows, so we use a process of deduction and elimination to give us the best bull and bear scenarios to consider.
As we see in the sector analysis below, our catalysts are bearish. We are priced to perfection, with earnings beats outnumbering earnings misses, therefore traders will likely start taking profit at any sign of trepidation. Consider this a short term pivot high.
The post election rally recorded a (+9.579%) advance, before succumbing to gravitational forces yesterday. RSI and stochastic are overbought, so we can assume we are more likely to retrace some of the recent gains than continue unabated to fresh all time highs.
Targets are the 9ema-daily, then the 23.6/38.2 Fibonacci levels.
Breadth of the Markets
The market is in the process of sorting out the hawkish tone from the Federal Reserve, so those stocks which have seen the greatest appreciation in price, now find profit taking at highs, This change in breadth is evident in NYMO. Note the 20sma (blue line) gives us a top down view of the cycle. As we lift the moving average trends higher. We are starting a cycle down. Again, we anticipate this will be short lived as NYSI (lower panel) depicts in late November. The summation index moved sideways for a day or two before continuing higher.
Given the overall strength in the markets and the bullish “yield spread” discussed yesterday, we anticipate the pullback will be short lived. As a side note, we postulate that any pullback shy of 38.2 is considered a strong market.
When we print a pivot high, we systematically shift to a “wait and see” mode, wherein our position size becomes smaller on new entries and stops get tighter. We also look for shorts to work. Note GIMO and CARB were shorts on the weekly watch list. Both moved lower.
Finally, we look to rotation, as the SPDR sectors remain overbought. Industry groups have small pockets of winners every day. Yesterday we saw news media and broadcasting pop to the top of the list.
Charter Communications, a Warren Buffett holding, Comcast, Dish and Time Warner are in this Broadcasting and Entertainment group. Check these stocks out for potential trades. Utilize a strategy, like the 10e/STO/MACD setup and use a tighter stop than usual.
Have a great day. Ten days till the holidays start.
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