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The market is flexible, adaptable to new conditions. Money always goes somewhere. While the main indexes continue to be under pressure, select sectors are thriving. Last week, the big winners were oil, coal, grains, metals, grocery stores, military stocks, railways. The losers were tech, consumer discretionary, Europe. In fact, most of the European indexes and ETFs made fresh 52-week lows on Friday.

For a brief moment last week, alternative energy stocks also perked up – solar, fuel cells, you name it. It only makes sense. If oil, gas, and coal are getting way more expensive, their alternative should be worth more. This is exactly what happened in 2007-mid2008 when oil went from $60 to $140 per barrel. ESG wasn’t even a thing at the time. It’ll be interesting to see if the same patterns repeat this time again. Most alt energy names are down more than 70% from their recent highs and still in a downtrend but I’ll be paying attention. 

I don’t know how long the run in commodities will last but what I know is that eventually, it leads to further weakness in the general market. Most stocks keep making lower highs and lower lows in a declining market but shorting is not easy when volatility is elevated. In a headline-driven market, even a rumor can cause a quick short-term bounce that can stop you out before a stock continues lower. The cure is to be aware of the choppy nature of down-trending markets, be nimble, take frequent profits when you have them and use smaller positon size; be selectively active, and simplify things as much as possible.

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The charts in this video are powered by MarketSmith

The main indexes tested and even went below their January lows, only to stage a major bounce towards the end of the week. Given the sentiment and economic backdrop, it’s probably just an oversold bounce within a bear market. And yet, it’s anyone’s guess is how long it’ll last. The S&P 500 testing its declining 20-day moving average or even 450 is not out of a question. 

Metals stocks have been notably the strongest sector, probably due to war-related sanctions. XME is at 10-year highs. Steel, aluminum, copper stocks are busting loose.

Oil stocks are also holding well and are setting up for potential breakouts – GUSH, ERX, AR, DVN, TRGP, FANG, MUR, SU, etc.

It’s good to see stocks outside of the commodity space starting to break out and set up – SEAS, LNPH, DOCS, etc.

It’s still a headline-driven choppy market that is capable of gapping up or down 2% on any given day. This environment requires one to be nimble, open-minded, and willing to trade both sides of the market.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.

The charts in this video are powered by MarketSmith

Most stocks are in a bear market. There has been no follow-through on earnings breakouts this season. Most upside gaps are either faded immediately or lead to exactly one day of upside action before they get slammed. On the other side, there has been plenty of follow-through on earnings breakdowns – see PYPL, FB, for example. 

Nothing goes straight down or up. Occasionally, bear markets have viscous short-term rallies just so they can scare the shorts out of their positions and trick new longs in. When the bear lays out honey, it is usually a trap. The tiny low-volume bounces just create better risk/reward short opportunities. The bounce we saw in the first half of February was followed by more selling. In fact, many cloud and Internet stocks have started another leg lower. 

To top it off, there is a war lingering in the air. I don’t know how much of it has already been discounted but markets tend to overshoot. Scared people tend to panic and panic leads to liquidations and forced selling. No wonder buyers are with one foot out the door and have to conviction. And this won’t change until the indexes make a higher high which currently means 460 for SPY. In rising markets, it pays to hold longer. During corrective, choppy markets is important to be nimble and take profits quickly on both long and short positions because they tend to disappear quickly. If you cannot adjust to this new reality, it is better just to stay on the sidelines and wait out the storm.

The main indexes seem headed for a test of their January lows. This means 420 for the S&P 500 (SPY), 334 for the Nasdaq 100 (QQQ), 190 for Russell 2000 (IWM). They don’t have to get there in a straight line. There could be another bounce along the way.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.