Broad Market Outlook
With this wishy washy action lately, even as the broad market is still managing to tick new highs, from a trading standpoint, it surely does not feel that way.
The shift out of the breakout market that we grew accustom to from October to November has continued to confirm the shift into a range bound market
In breakout markets, its obviously a much easier market to trade in, one where you buy what looks prettiest and often get rewarded. Buying high and selling higher. If a breakout market was a board game, it would be Checkers, where there's a limited amount of moves and often an easier game to grasp.
While a range bound market, forces you to think more critically and buying what looks the prettiest rarely looks as good the following morning. In a range bound market, its a quality game, not a quantity game. Its more like a game of Chess, where patience and thinking a few moves ahead often are whats required.
We often find the best deals in the names that look the ugliest in the short term. I don't mean names that are so dead that they are trading near 52 week lows, gapping down huge with increasing volume but names that are pulling into support in the short term that we keep an eye on to see if the selling continues or if its slowly up just when its most hated.
Just think of the overall shift in the groups outlook of the market on Wednesday (bullish engulfing back at highs) vs Friday pulling back in. In this 5% range, it does not look ugly just yet dead smack in the middle of the range. It will look much scarier if we see a retest of support at 450 where the market will look like its about to fall off a cliff and it just might however that cliff isn't the edge of Mt Everest, its a cliff with a ledge a few feet below at SPY 425.
If we pull into 450 this week, when things are looking its bleakest and the chat is the quietest, that is the ideal time to scan through the market to find a diamond in the rough.
If you can't find one, that the answer is simple, take a step back, away from the ledge, and let the rest jump down lower, then you can simply just take the stairs without any of the risk.
From Ben G
Macro Rotation Outlook