Dangerous Times For The "Little Guy" Institutions are playing mind games with the market. Just 10 days ago, it seemed like they were going to deploy their cash reserves back into some of the leading sectors. The 8 day, 21 day and 34 day exponential moving averages (EMA) of the three major indices (SPY/QQQ/DJX) that I track daily were kissing each other yet on Friday, institutions ended the party and parked their cash in a lagging sector ($XLE) where it would be safe. They demonstrated their intentions by taking positions in the energy sector as a whole.
Can They Hide All That Cash?
I recently outlined how important it is to examine the behavior of institutions. With the size of the positions they take, it's hard for them to hide their intentions. My analysis of the 9 sector ETF’s allows me to sniff out their plans. I have noticed that the energy sector, which has been lagging for months, is beginning to turn the corner from its all time low. Currently 90% of the stocks in that sector are trading above their 50 day simple moving average!
Could there be some sort of a sector rotation going on? Health Care ($XLV) and Consumer Discretionary ($XLY) were 2 sectors that institutions heavily supported for the past several weeks. It's quite possible that they're taking profits from these sectors and deploying them into energy related businesses where they can exercise a high level of control right now.
What Does IBD® Show?
The current market outlook according to IBD® is “Uptrend Under Pressure”. Market conditions are not great right now I'm taking a very low risk approach. We still have 13 distribution days and I consider that to be high. This requires extra caution so I'm looking for just 1 true rock star of a stock to give me the best chance of success. My funnel process has put 3 stocks on my radar this week:
$HAR
$MNST
$ULTA
It's not enough to pick a great stock if the market timing isn't right. These 3 have been trading very tightly around 8 day EMA for quite a while now but I would feel a whole lot better if the volume kicks in 40%, or above, their average daily volume and past their resistance lines. It would be even better if the SPY punches through its resistance of 213 and QQQ to punches through 109 in high volume as well.
Happy trading!
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