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Some thoughts heading into the week
I’ve gone through all my weekly charts. Everything looks terrible. Nasty breakdowns and downtrends are all over the place. Investor sentiment is at all-time lows. Everyone is bearish. Volatility is rising.
$IWM weekly bear flag
We've got breakdowns in energy and materials. Utilities are selling off or failing to show break-out continuation. Even the strongest stocks are getting sold off now. I see evening star or shooting star candles on many charts. Even the strongest charts look like they're rolling over.
$XLE daily failed breakout?
The Financials XLF are breaking down. Individual banks looking terrible. Many are back below the Covid low anchored VWAP.
$XLF is at the bottom of its range and looks heavy
I’ve been writing “caution” for a few weeks now. It’s possible that we see real downward acceleration this week.
On the other hand, interest rates are approaching an area where they could stall out and reverse, even if it's just temporarily. And that would likely provide some relief.
The combination of these factors could actually be reason enough to have a rally from here. In the words of Jesse Livermore,
"The stock market is never obvious. It is designed to fool most of the people, most of the time."
Quotes are fun. Statistics can be useful. But the price action has the final say. Price is truth. And it's telling us to be cautious.
So remember, cash is a position. Don't be in a hurry to put money to work on the long side. When and if you do, manage risk tightly and know that the overall market is suspect and will likely be a headwind.
Trade ‘em well.