Sector update: Tuesday PM May 22
Although Tuesday the Nasdaq Composite failed to follow through on Monday's big breakout, the index traded in a narrow range and managed to close higher than Monday on decent volume and normal breadth numbers (2.3B shares on the Nasdaq). Today's very narrow-range consolidation day in the techs could be just a "pause" that allows the Naz to correct in time a little before another move up; or, we could see some kind of fibonacci retracement into Monday's range tomorrow, before the market firms up and heads higher (assuming this breakout is going to hold, which looks likely).
The Banking sector was a leader Tuesday moving up almost 2%, followed closely by the Networkers and Airlines. Some of the networkers (e.g. BRCD, EXTR which we are short) rolled over to close on their lows of the day leaving bearish candles on the daily. We're expecting perhaps some minor weakness in the morning in those stocks before they firm up. The Semiconductor Index also turned down and retraced a bit, with selling volume a little heavier into the close evidenced in Intel, AMAT, etc. The $SOX has had a huge run (453 to 700) in the past 7 weeks, so we are watching it closely for signs that it may falter, providing shorting opportunities... however no sign of that yet really, with today's action looking more like light profit-taking and normal corrective activity following a breakout of previous swing highs.
The Drug sector rolled over Tuesday and may provide shorting opportunities Wednesday especially if the money is flying into tech; however any shorting there is counter-trend proceed with caution. The Oil stocks rolled over intraday Monday and followed through to the downside today... there may be more shorting opportunities as Oil has had quite a run. The Oil service stocks left their first down candle in a while on Tuesday, and appear to be following the break in the Oil stocks.
Another interesting sector is the Gold-silver stocks ($XAU.X) which after trending up beautifully since early April, reversed sharply Tuesday and threatens to take out the low of Friday's breakout expansion range bar, which will trap the longs just-initiated in this sector underwater -- watch out below as panic can set in with that setup. Telecom and Software look suspect and will be monitored. We shorted the Dow today as it showed signs of losing momentum -- it has had a huge run, straight up for two months and is due for a correction. We keep our risk under control there by going in light and using at-the-money puts with a month to expiration, buying them when the Dow is rallying and the volatility is low (you have to be anticipatory on those, unless you like paying for premium:)
Internets broke out nicely on Monday, held the gains on Tuesday but closed the session leaving an ominous Doji... we'll keep an eye on that, remembering one daily candlestick is only a piece of the puzzle.
The Transports, which often lead the broader market, have turned to mush the past two sessions falling back into their trading range. Should that happen to the broader market this week or next, it would be a real shocker. No predictions yet, we'll just set back and observe!
Good trading, Steve |
