I have been silent for a while. Life takes its toll and sometimes limits our ability to do everything we are supposed to do. I have been participating but only marginally. This market is still not showing any real strength, but continues to go a bit higher. I am still net short the market and am looking for trades to supplement some of these net short positions.
The IWM and SPY moved up but only marginally. The IWM is getting close to the underside of the former highs. This is in the 63.50-64 area. We may get some additional upside but a pullback is now more likely than a continued push higher. No guarantee how far this will fall only that a pullback is more likely right now than a continued push higher in the near term. The SPY has touched the underside of its former uptrending diagonal line. This is a typical spot for a downtrend to develop. Because I am already more short than long I don't need to make many changes.
The Sectors have certainly made some moves but lets take a closer look.
XLY - Consumer Discretionary - This sector bounced from its uptrending trendline but has not broken to new highs. In fact, if we begin a move down we will be forming a lower high. We are very close to resistance at this point so we are more likely to push down based on the extended move up than continue this bullish trend at this time.
XLV - Healthcare - Healthcare is weakening. We have lower highs and lower lows in this sector. On a daily chart we should expect a continuation of the downward move. I may initiate a short call spread on the ETF rather than looking for specific plays in the sector.
XLB - Materials - The materials sector is struggling on a daily chart so in the short term we should expect a pull back as well. Like many of the other sectors we are seeing price increases to critical resistance points.
XLF - Financials - Very much the same as XLV, XLB. Volume has been particularly anemic in this recent move up. I have a couple of June 12 puts and I am likely to add significantly to this position on Monday. Call it cheap insurance.
XLI - Industrials - The industrial sector has been relatively strong compared to the other sectors. We saw a bounce from its rising diagonal trendline. The recent bounce though has seen anemic volume yet again. Another pullback to the trendline is likely.
XLK - Technology - The technology sector often leads the way. We have significant weakness in this sector and the uptrend has been on really poor volume. A fall to 21 is likely and if this breaks we will see 20. We are forming a bear flag in this sector now.
XLP - Consumer Staples - This is the only sector showing real strength. Volume is not giving a contraindication of the move. Only weak volume day was last Friday. We have had an extended move and a pullback will be beneficial.
XLU - Utilities - The sector is one of the weakest now. The Utilitiy sector falling is indicating that interest rates are likely to go higher and this is not a very bullish indication.
XLE - Energy - This sector is looking to be developing a sideways trend. It is showing more strength than other sectors. I believe this may be indicating inflation coming much like it did during the oil peak in the 2007/2008 timeframe.
In short we are not seeing a lot of strength. Some exchange traded funds indicating more sideways trends or even outright strength are XRT and XHB. XRT hit relative highs and appears ready to pull back. Pull back to 34.50 would be likely based on previous price action. XHB actually closed above the trendline I used to make my previous bearish trades. It did bounce down after hitting prior highs so maybe we are forming a new sideways trend and this sideways trend may explain why volume seems to be drying up. Sideways trends are hard for instituitional money to actively speculate due to position sizing. I fully expect some sideways markets now. Which way they break will determing the next real trend.