Broad Market Outlook
As the 470 area continues to act as resistance, buyers continue to seem eager to step up and give us very short term pivot lows to trade against.
For now we are still in this range between 450 vs the 480 ATH area. If you feel your having a hard time finding conviction in names in these small ranges, you are not the only one.
Looking under the hood, the sectors that we want to steer clear of for the time being seems to be Biotech's as they continue to put in newer lows and lower highs trading well below its 200 day.
Telecom is another space that we should look to avoid, as it too, continues to base under its 200 day.
Tech and Consumer Discretion's both seem to be quite weak as well, these both are above or closely above there 200 days however they just continue to look and feel as if they want to head lower in the short term.
On a positive note, Materials look quite strong as they continue to battle with its current ATH and Industrial's with a very similar story as they continue to flag out under blue sky's.
While Consumer Staples and Energy are the sectors leading this market. The rotation to value names (not sexy names) and consumer staples go hand in hand with that thesis.
While Energy, the worst sector in 2020, has been one of the best performing sectors since and that trend looks to be continuing into the new year.
The topic of energy going from the absolute worst to the absolute best, is a great real world example of why we look to properly rebalance. Taking profits in our winners and adding to our losers. As last years loser, has an easier chance of being next years winner from a percentage standpoint.
What I mean by that is VDE is up 300% off its lows when it was hated and left for dead in 2020, the only way to be apart of that return is to be a buyer when its the most hated.
While the prom king which was Tech is only up about 200% during the same period. Currently most were happy with there vote in Tech but as those names have been taken to the woodshed recently, peoples votes can start to change.
Stock wise CHTR has been a great example of why we want to wait for the bases to form instead of trying to catch those alluring lows. We can see the clear Base that formed in CHTR, then the Breakout phase, then the clear Breakdown phase and now its starting to Base again.
Currently we starting to see these deals in some of favorite names that have pulled back off significantly of their highs, NFLX and SHOP are two that ring a bell for me.
The initial thought with SHOP is buying $1,000 and selling back up near $1,700 is a 70% trade, let me rush in, but when we look back to other times that we may have wanted to rush in. Very rarely are we quickly rewarded with a 70% trade that we think will occur in weeks once we click the button.
The reality is it will probably need to shake out those perfect support areas and base out for weeks or months before any real change of trend is going to happen.
NFLX is another, its pulled back $150 off highs and the first thought is "could it be a sneaky buy back?"
In reality, its just dropping like a rock and will more then likely see lower prices and need a significant base to form before investors are willing to pay up for stock.
We want to be on the look out for bargains but those bargains need to come with a base as a bonus or they are not worth the time, effort and losses that tend to follow trying to find that cheap deal that often becomes cheaper with a proper base.
From Ben G
Sensitive - sectors that have moderate correlations to overall market conditions.
"Don’t tell me what you think, just tell me what’s in your portfolio"
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Cyclical - sectors that are more sensitive overall market conditions.
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Big Picture Set Up
BOX still continues to respect that 25 area of support with the entry being up through 27 in time.
With a 4th attempt in the books for EXPE as it continues to battle with this 190 Blue Sky Breakout level, could be one to keep an eye on if this higher pivot lows continue to step up.
After ORCL faded the earnings gap up, it has continued to base out in the same range for the last few months now, could look to buy up through 90 in time.
3rd major attempt is in the books for UPS as it continues to form a massive flag under this blue sky breakout level. For now we have to be thinking of waiting until earnings to see if they are going to ORB it or send it back down into this wide $50 range that it's been trading in.
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