First off, excuse the sloppiness of my thoughts below. I have a busy week ahead and likely won’t make any trades, therefore my plan for the week ahead is a lot less detailed than it normally is. Instead I just want to list a few things I noticed while going through my analysis this weekend.

  1. Only the stronger of the major indices are just barely hitting overbought conditions (NDX, DJIA), whereas the micro-cap, small-cap, mid-cap indices continue to lag on an absolute basis and have yet to decisively clear the multi-week range they’ve formed down below.
  2. There are a number of themes present within individual sectors. Retail names, such as M, BBBY, URBN, GPS, KSS, DG, DLTR, which have been beat up as of late are hitting downside price targets with momentum diverging. This combined with specific names being very extended from their 200 day moving averages make the sector ripe for a bit of a mean reversion to the upside. Energy also looks interesting on the long side, as many names I’ve looked at are flagging for continuation, but upside looks limited with flat / downward sloping 200 day moving averages just overhead in the case of the sector ETFs and many individual names. On the short side, there seem to be a ton of short opportunities in the consumer staples space as false breakouts paired with negatives momentum diverges were found in many of the popular names including, MRK, PEP, PM, MO, KMB. Also, there seem to be some interesting setups on the short side in healthcare and biotech as well.
  3. On an individual stock basis I’m seeing a lot of flat 200 day moving averages which make for a choppy trading environment. Additionally, stocks that are hitting new marginal highs, or are back at overhead supply, are doing so with momentum diverging. The same goes for marginal lows, which sets up a lot of potential false breakouts / breakdowns that could lead to some mean reversion back to the flat 200 days. These types of setups are good because false moves allow you to define your risk / reward very clearly.
  4. Foreign equity markets don’t really look all that great. I expect that the mean reversion in many of the countries around the world is largely complete, meaning that we’ll either consolidate at these upper levels or continue lower. Within this type of environment I think it’ll be difficult for the major US indices to hold up well and continue to grind higher, hence the reason the amount of short setups I found outweigh long setups in the US equity markets. For now it’s just a divergence, but I guess we’ll see soon enough if it’s as important / significant as I think it is.
  5. In the commodities space I continue to like Sugar, Lumber, Platinum, and Palladium on the short side against the recent highs. Rough rice looks interesting on the long side here after retracing back toward support and continuing higher late last week.
  6. Not much going on the in currency space, though I think this pullback in GBP/NZD is likely a good opportunity to get involved on the long side of a monster structural uptrend in this currency pair. The yen remains a mess, as the flat 200 day continues to wreak havoc on that market. The negative correlation between the yen and the US indices has slightly decreased over the past month or so, but is still extremely strong over the longer timeframes.

That’s about it. Check my stocktwits or twitter stream for info about the setups I highlighted over there. I will have a more comprehensive weekend review next week, when I hopefully intend on trading again (if there are opportunities of course).

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

Weekend Thoughts 11/1/15