Broad Market Outlook
It's funny how the difference of a few companies reporting can have such a drastic effect on our overall outlook on the market.
Facebook gaps down 20% and it seems as if the market was going to come crashing down, yet the next day with Amazon, AMD and SNAP reporting, they seemed to tells us the opposite was true and there was hope in the market again. I know, I used a bad word.
Now maybe the fact that we had already retraced 50% of the most recent lows helped add fuel to that confidence fire, who knows.
It does seem for the most part that the correction turning into a bear market seems to be in the rear view as we continue to shift into a range bound market as the market starts to accept that higher rates should be expected in the future.
For the most part, it seems as if most names have already bottomed out and have bounced off there respective lows. As we trade in the middle of this range, this is the tricky part becuase we are in no mans land.
Take the SPY for example, the range is 420 to 480, do we want to buy 460 where our realistic upside is 20 points higher while our real out is 40 points lower? The answer is probably not.
The reason why I mentioned the SPY is that it can be a tool to trade throughout the year on very, very specific days. Out of 200 trading days in the year, there are maybe a handful of days where you can find safer trading set ups in the broad market then individual names.
However this is not an approach that should be on the game plan daily or consistently as it will often just lead to over trading and missing the forest for the trees.
In this range bound market, we need to be playing more strategic, waiting for 3rd day down to buy up through the prior HOD, not buying the 3rd or 4th day up into the extended moves.
We will continue to see those big percentage days as names are finding new lows and bouncing off them but do not let them fool you. SNAP was a great example of this, yes I am very glad that the name gaped up 60% yet its pretty much still near its 52 week lows and no where near any profit taking territories.
When you see names that are up 5-10% in a day and you may think "if only I bought some" zoom out and look at the 50% drop it had over the last month and you will probably think other wise.
It's only a matter of time before we see new highs, however just because that is in the cards, it does not mean that we can't see new 52 week lows before that happens.
From Ben G
Macro Rotation Outlook