We had 4 days of high volume trading in the market last week but all the three major indices that I monitor - $SPY,$QQQ and $DJX - moved up about just 1% from the week before. They are also trading below the 200 sma. Some of my readers have been asking me as to weather or not this would be a good time to be taking some stock positions since the market is in a "Confirmed Uptrend" My outlook on the market is still leaning on the bearish side. All the 9 major sector etf's - $XLK, $XLV, $XLB, $XLI, XLY, XLP, XLE, XLF, $XLU - are still trading below the 200 day sma as well too.
Payroll report on Friday was downright ugly. Figures for September payroll was 30% below estimate. The numbers for August were revised downward as well. $CAT had announced a plan for major reduction in their payroll as well. $WMT also announced a cut back of 500 positions at their headquarters. We are already in a deflationary environment and there really isn't any wage growth to speak of. Under such circumstances, it is best to wait for a few days to see where the institutions are deploying their capital. In the mean time it is best to continue to look for bearish opportunities in the market.
Institutional Behavior
I have often indicated that the institutions - pension funds, hedge funds and mutual funds - account for over 75% of the volume in the market and they ultimately are responsible for moving the market. One has to follow their lead if a trader is going to be profitable and successful. One also has to be cognizant of the fact that there is an actual human person who works for the institution that actually makes these trades. They all suffer from the same emotions that we as retail traders have to deal with. They also exhibit the same herd mentality that we as retail traders do as well.
Lately in the last several weeks I have noticed that the institutions keep rotating in and out of biotech and health care stocks. They also begin to look for bargains in the depressed sectors such as the energy, industrials and materials. This is what has caused the rally in the market last week. One thing that the institutions can't do is keep the extra cash in a checking account like we as retail investors can do from exiting profitable positions. They have to be fully invested at all times. What they have been doing for the last several weeks is spreading their monies into thin stocks where they can control the price or they are taking positions in the depressed sectors where they think they are getting a bargain. This is the reason why I as a retail trader just don't trade thin stocks or consider depressed stocks as a bargain.
Bearish Opportunities
I continue to see opportunities on the bearish side of the market. Some of the stocks that can present itself for short term credit spreads are:
$SLB
$GG
$POT
$OIH
$SBAC
Just be mindful of the fact that most of these stocks report earnings this month. Plan your trades so you don't get caught with a nasty earnings surprise !
Happy Trading!
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