We saw a huge divergence in stocks over the past few weeks and it was extremely pronounced Wednesday when the small caps (IWM) got destroyed but there was muted action in broader indices like the S&P, the Dow & Nasdaq. The small caps, being the most risky names in the market, are generally the first on the chopping block when it's becoming a risk-off environment. We saw that divergence dissipate when the broad market had a big time sell off Thursday and Friday. Last week's sell off signaled more downside ahead in the near future, while the long term trend is still unquestionably up.
For the more active traders, we'll definitely see trading in both directions. In these environments if I'm taking trades I am much more 'shifty' and taking profit more quickly, and certainly not hoping for any home runs. We will have plenty of opportunity to put on calculated risk in the next few weeks when earnings announcements ramp up.
In the meantime, IT'S OK TO SIT IN CASH. This is the heaviest cash position I've held in some time and felt some pain Thursday, cleaned up my positions and didn't have to sit through too much agony Friday. The strongest charts out there are energy and utility stocks which don't quite excite me from a trading standpoint.
I generally do the bulk of my quarterly trading a couple weeks into earnings as the strongest names present some calculated buys. So in times of uncertainty I'm prone to risking less where I feel probability isn't on my side as much.
Earnings Season is beginning this week as the banks kick off Friday and we really see a swarm of reports the following week.
Going to be frank, market conditions are subpar right now, and with the biggest catalyst of earnings season just a week away, I'm not looking to load the boat anywhere this week. I would rather save that risk for post-earnings setups. In the meantime I'll still take trades as I see fit this week, but generally slimming down on the risk. This OKE being an energy name, has held up really well and has begun to coil tightly.
Above $69.20 this one should see a pop.
Hope to see you in the chat Monday!
If we see a major change anywhere this week I'll keep you updated with the charts as there aren't a plethora of setups going into the week.