Market Outlook
Even with the market 2% away from all time highs. The September weaknesses is being felt across most sectors or maybe its just me. Scanning the market this past week, it has been hard to find follow through from the set ups at hand. While this most likely stems from the shift in stages we are starting to see.
The market as a whole is really just bull flagging at all time highs where the real line in the sand to get more defensive is below the 730 area. Which we are quite the ways away from at the moment.
While sector wise, we are seeing most sectors doing 1 of 2 things. Either they are pulling into support which we are seeing in the REITs, Industrials, Materials, Consumer Staples & Consumer Discretionary. If they are all coming into support, support buy backs will be on the menu in time, but not yet.
The other thing we are seeing in most of the other sectors, such as Healthcare, Financials, Utilities and Dow 30 names are the shifting stage 2 breakout stages into stage 3 topping patterns. This is where trading the ranges is key and buying up off support is a must in this stage.
Now overall the answer has been avoid breakout setups as the sectors are telling us as much. While I learned this first hand this week as I had 2 of my worst trades all year, break out the baby violin. I lost an annoying 5% in both KNSA and HNGE.
First up, we have KNSA, textbook earnings flag and buying the 3rd attempt, but the name simply just wasn't ready. The lesson from this and the lesson I relay to you as often as I can is if the breakout isn't breaking out, get out. That Doji was the sign to at least raise the stop vs the LOD. But since I didn't limit the risk, I got shaken out and lost 5% when it could have been a much smaller 1% loss.
Next up we have HNGE.
Which is a textbook blue sky breakout and our A+ set up, this other worse trade of the year looks like nothing on the daily chart. I bought 93, the next day it battled it out at that level but the buyers just were not there. There was a time in this trade where I was breakeven and "could" have gotten out flat and just rebought the new high. But that's a tricky game, so I stuck with the plan as there was no way to keep it much tighter.
My two worst trades in the last 9 months were 5% losses each and sometimes that's just a part of trading. Sometimes they fail, but we just have to be ready to buy them back if they set up again down the road.
As much as these set ups still look amazing overall, the sector both of these names are in is seeing some short term weakness. Once those sectors settle out and start to get some love from the buyers. Those two set ups will be ripe for a breakout higher.
Now that we are past the gloom of those crappy trades, there are two sectors that do look pretty good.
The tech sector is flagging out as nicely as we could ask for and even the Semi's look pretty decent lately.
Semi's are very clearly in a topping pattern (sideways price action, range bound) and what we should expect from the sectors that are entering this stage currently. But the confirmation of a topping pattern is a break of support. For now Semi's have been putting in higher lows since August.
As most of the market and sectors are looking a bit weak. Maybe, just maybe these two market leaders from earlier in the year decide to take the lead again from the Bio's and Healthcare that were the prom king and queen over the last few months.
For the week ahead, my focus is going to be on the tech sector more heavily as the sector is the A+ sector for the week ahead.
From Bennett
Founder Big Picture Trading
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