Weekend Thoughts 10/11/15

This is going to be a relatively short post as I don’t expect to do much in the markets over the next week or so, as time will be needed for new setups that fit my strategy to develop.

After nine days of upside, we’re headed into overhead supply into many of the major indices and US sector averages. Commodity related sectors like KOL, SLX, XME, XLE, OIH, XOP, saw massive rips to the upside last two weeks, with some names up 20-30% or more. Other sectors like XBI, XLF, IAI, IYZ, didn’t participate much, experiencing relatively small bounces below key resistance levels. At this point, since I haven’t had any long exposure on, I don’t plan to add any as we head into this overhead supply. I’d much rather be looking at the short side of sectors that didn’t participate or looking for strong sectors that I want to be buying if the market consolidates at higher levels. XLY, FDN, PBJ, ITB, XHB, all have rising 200 day moving averages and have not pulled back as much as the rest of the market, so those are some areas that might be worth a look on the long side if/when the market firms up a bit.

Foreign equity markets are in a very similar position, with commodity related countries getting a bounce in these past few weeks like EIDO, THD, EPU, ILF, EWZ, GXG, ECH, RSX, and VNM bouncing really hard within structural downtrends. Turkey (TUR) is at a critical long term resistance level near 40. Many will be watching to see if it reverses and heads lower, or if we continue to squeeze toward the next resistance level near 42 before heading lower again.

In the currencies space we saw the same thing with AUD/USD, CAD/USD, NZD/USD, all benefiting from the snapback in commodities. Many people are watching USD/JPY as that range has not resolved itself yet, but when it does, will have big implications for US equities.

Long term interest rates remain rangebound at best with a flat 200 day creating a lot of whipsaw action, still nothing to do there.

If energy-related equity sectors & markets, as well as the Canadian Dollar are bottoming for good, there will be plenty of opportunity on the long side. I think this is an area where a lot of people are underinvested or short, which leads to sharp rallies like we saw as of late. If the 200 day can continue to flatten and begin reversing trend, we could see a longer term move develop.

Many are also looking for bottoms in the precious metals space now that silver is gaining some traction. I do see some improvement in the price action of Silver and Gold in particular, but I think that similarly to energy, it’s going to take some time for price to put in a structural bottom. If the lows are truly in, we will have plenty of time to get involved on the long side before we get a sustainable long term move to the upside. With many structural downside targets hit and sentiment/commercial hedger positioning where it’s at I see two outcomes. Either we rally/consolidate and sentiment resets for another move lower, or it remains elevated and we break to the upside to create a new trend. Or it could do something totally different, who the heck knows?

I’m also watching the Soybean market for a breakout above that 900 level which I think can offer a nice risk/reward setup for a mean reversion to the upside like we’ve seen in other commodities.

Some things that look interesting on the long side in the coming week include: NKE, AOS, LB_F, ZO_F, EGPT.

Like I said at the beginning of the post, this week I’ll likely be waiting/watching to see how things develop before putting on any trades. The time to get long was 8-9 days ago, and I’m not going to get short without a pivot to trade against. We’ll just have to see what the market gives us.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.


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