Is something BIG on the horizon?
Most stocks are falling and the headlines are grim, yet the S&P 500 is holding up well. What I'm seeing, how I'm reading it, and why I'm preparing instead of predicting.
This is a strange market.....
Look at the S&P 500 and things seem fine. Look underneath and it's a different story. Most stocks are falling, the headlines are heavy, fear is high, and yet the SPY is holding up. Today it even printed an oops reversal and had a decent close.
So what's going on? I don't know for sure, and I'm wary of anyone who says they do. But here's what I'm seeing, how I'm reading it, and what I'm doing about it.
Under the surface
Breadth has broken down. The majority of stocks are declining, and about 52% are in Stage 4 on my scans. In Stan Weinstein's stage analysis, that's the declining phase.
RSP is struggling. The equal weight S&P 500 is below all its key moving averages and slipping back toward the level it broke out from at the end of May which also corresponds with the 200SMA
SPY is holding. Today it opened below yesterday's low, then buyers pushed it back above and it closed strong. That's an oops reversal: the selling got absorbed.
The average stock is struggling, but the leaders are holding.
Generals without troops
Bond yields are high, diesel is through the roof and the Fed might raise rates again. On paper, that's a falling market. But this one keeps showing life.
The generals, the big leaders, are holding the line while the troops retreat. A split this wide usually ends one of two ways: the troops catch up and the rally broadens, or the generals fall back and the index catches down. I don't know which.
Something big coming?
Maybe. Tightening usually comes before expansion, and several of my setups are tightening: ranges narrowing, volume drying up, holding up well while the market bleeds. But big doesn't tell me which direction. I'm not trying to predict it. I'm trying to be ready either way.
Setups I'm watching
These are charts on my watchlist (some I own already), annotated with what I'm seeing:
CRCL - Price is coiling and tightening on the right side. The last 4 days price has gone down on declining volume forming a flag and with an oops reversal today, it is telling me buyers are entering. Crypto theme is HOT too! Already positioned in this one.
ANET - Price is less than 5% of its highs and sellers do not seem to have the upper hand. It gapped down on the open today but reversed back quickly, also forming an oops reversal. The setup is good and already trending in an RS phase. Already positioned in this one.
IONQ - I've got a love hate relationship with this stock... Made some money earlier in the year on it and it's popped up on my watchlist today after some news headlines. Big volume over the last couple of days. Structure looks good and it seems to get ready for a big move. I'm keeping an eye on it, ideally i would like to see volatility come down and it compressing a bit more
NOW - Broke through the base and now consolidating on declining volume. There are a number of Software names looking strong and I think this group might be one of those who will carry the market higher.
AAOI - Photonics will be playing a major part in the AI-buildout and this one is a leader forsure in that sector. It broke out of a massive multi-year base quite violently at the beginning of the year and it busy basing for the next move. It's not quite ready yet, but getting there and I'm keeping a close eye
BE - Another Pelosi favorite and one to watch forsure! After breaking through the base pivot earlier this month, it has since come back to retest that level. This morning it gapped down lower to open right at the 21EMA and rebounded with a strong close. I would like to give it a couple more days to see volatility come down and it coiling, getting ready for the next move
CBRS - It's still forming the post IPO base and not broken out yet. I have it on my list and keeping a close eye
This is my own trading journal. It is not investment advice, it is not a recommendation to buy or sell any security, and it is not tailored to your circumstances, your objectives or your risk tolerance. I am not registered as an investment adviser, dealer or representative with any securities regulator. Trading involves substantial risk of loss and most active traders lose money. Do your own work and speak with a registered professional before acting on anything you read here. Full disclaimer.
