Before the trading week gets underway, I just wanted to summarize my recent commentary & outlook for the US equity markets as well as some of the sectors that have recently been in focus. At this time it appears that the US equity markets are very likely poised for at least a tradable pullback. By tradable, I am referring to a short-side (bearish) trade on the broad markets that is likely to last for at least a week & quite possible much longer.
Based on my analysis & assuming that I am correct, the ensuing pullback in the market will likely bring down most equity sectors including energy, industrial & precious metal miners, the transportation (including the shipping sector, which I was recently bullish on) and more. If so, that would be in contrast to the character of the U.S. equity markets so far throughout most of 2016, a market which has been characterized by sector rotation; money quickly & powerfully moving out of certain sectors into other sectors, all while the broad market, while having experience one big selloff followed by a nearly equal snap-back rally, is virtually right back where it closed on the last trading day or 2015.
Over the years, I've corresponded with many part-time traders & investors that have asked if I could share my thoughts on when the risk/reward seems very favorable to position for a potential trend change in the market so that they could be ready to position for a possible trend change & I just wanted to be clear that this looks to be one of those times. For those new to the site, please know that I have been wrong before & my analysis will be wrong again in the future & could very well be wrong at this time. With that being said, trading & investing is all about putting the odds in your favor by waiting patiently for the market or a particular stock to come to the point where it appears that an objective entry, one in which the potential for gain overshadows the potential for loss by a wide margin. If your analysis is wrong, as mine could prove to be now, then a properly placed stop on your trade(s) will minimize your losses & allow you to stay in the game, patiently awaiting the next objective entry with a favorable risk-to-reward ratio.
With earnings season still underway, my recent preference has been skewed towards adding short exposure via sector ETFs vs. individual stocks, although I almost always hold a combination of both as I do now. For those that don't have the luxury or desire to focus on trading full time, including scrubbing all of your positions & trade setups in order to be aware of when they are scheduled to report earnings, the diversity of ETFs is probably the best way to go as ETFs help to mitigate the loss of being caught on the wrong side of an earnings induced gap.
I will follow up with additional market & sector commentary tomorrow, as well as updates to the Active Trade ideas, many of which are longs, including several in sectors that I have recently become increasing bearish on. I will be offline tonight but available to respond to questions via private message or within the trading room at least one hour before the market opens tomorrow.
Enjoy your evening,