Investor Spotlight

Is The Rally Over?

There is so much talk about North Korea in the media. Everyone is screaming "Sky is Falling". Market took a tumble on Thursday August 10th and lot of my readers were asking me if they should bail out of the market. They were concerned about what was going to transpire with Mr. Trumps comments "Fire and Fury like the world has never seen before". Let me just remind everyone that while the 500,000 US and allied troops had gathered to drive our Saddam Hussein out of Kuwait, people were just as concerned than that the market would tumble. On the contrary, We had a "Follow thru" day instead and the market just took off. All the rhetoric that we hear from both sides of the conflict is simply noise in my view. It is a distraction and we should instead use that time to build a Stock Watch List and a Trade Plan to execute. I like to be data driven in my decisions about the market. How I feel about the market is irrelevant. Lets look at the data of the market and see what we can learn from it.

Market Data

Currently we have 10 "distribution days" according to the IBD(Investors Business Daily). That should give us a pause for caution in the market. It is a risky condition right now to take on any new position. Any stock position that you may have now, should be maintained with a trailing stop in place. This is the time to be selling defensively. Looking at the long term charts of the 3 indexes - $DJI, $SPY and $QQQ, I find that the bullish market is still intact. What I am seeing is that these 3 indexes are continuing to attain higher highs and higher lows since the elections on November 8th. There are brief one day periods of market corrections along the way. Here are the results of the brief one day major correction in high selling volume we had since March of this year:

3/21 ... $SPY -1.28% $QQQ - 1.52%
5/17 ... $SPY - 1.77% $QQQ - 2.54%
8/10 ... $SPY -1.40% $QQQ - 2.14%

Market recovered the next day after these one day corrections. If you had trailing stops on your positions, you would have been protected on Thursday. We had an extended correction for a month between 6/8 and 7/6 but $SPY was only -1.33% and $QQQ was -5.14% during that month. Monday August 14th is a new day and a new week. Have the trailing stops in place and be prepared to sell defensively, should the market go into an extended correction like it did in June.

Stock Watch List

We are approaching the tail end of our earnings reports for the second quarter. We have a lot of retailers like $WMT, $TGT, $URBN, $LB, $GPS $TJX, $ROST, $AAP as well as $BABA and $HD slated to report earnings starting out on Tuesday. Retailers have not done very well and that theme will once again play out this week. That will put some pressures on the market this week.

$XLK(Technology Sector) has been the leading sector this year. It had been consolidating for the past 3 weeks until Thursday Aug 10th when it crossed below the 34 day ema(exponential moving average). $XLU(Utilities Sector) has been the leading sector for the past 2 weeks. Institutions are parking their profits into dividend paying stocks. Lets monitor our stock watch list and see where the institutions are deploying their cash.

Here are some stocks I shall be monitoring this week:

$AMP
$V
$MA
$PGR
$VRTX
$RCL
$IPGP
$PETS
$ANET
$ABMD
$MNST
$RACE
$ASML
$PYPL
$ALGN
$FB
$BABA
$GRUB
$CDNS
$CBOE

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