Some Sector Red Flags and When Dips Stop Getting Bought

dipping Some Sector Red Flags and When Dips Stop Getting Bought

If you  don’t read the newspaper, you are uninformed; if you do read the newspaper,  you are misinformed.– Mark Twain

This market has been on max overdrive without any real let up until recently.  The bears get a day of victory on seldom occasion only to have the bulls step up and buy their stock cheaper. It’s been a buy the dip market of biblical proportions. The rips get sold, but then accumulated on pullbacks with almost precise execution. Have we topped, are we topping or is this a whole lot of nothing?  Are we entering a “sell the dip”phase?  When dips don’t get bought, it doesn’t just imply a problem, but shouts it from the mountain top.

Several examples of this possible new trend are discussed below.

xlf8 300x145 Some Sector Red Flags and When Dips Stop Getting Bought

The financials happen to be my affliction, I have hated the group since the toxic days (still toxic) of 2007-8 and I still dislike the sector. Without going off on a rant as to the why of my opinion, suffice to say the group looks stinky at best here on the weekly chart. We have seen the market rally without the financials, but what happens to Mr. Market when and if the group just rolls over? See BAC, JPM & WFC. I have traded $FAZ often over the last few months, picking off a point or two here and there, and stopped on occasion, but gun to my head I see lower prices. No dips getting bought. I am long FAZ.

xlb2 300x145 Some Sector Red Flags and When Dips Stop Getting Bought
XLB

The material sector has always been one of my favorite sectors and I usually play the long side via $UYM and short via $SMN.  As the dollar has found some near term strength, this sector has been diving, no buy the dippers yet either.

xle3 300x145 Some Sector Red Flags and When Dips Stop Getting Bought
XLE

Energy is also one of my favorite sectors and we have traded ERX from the long side over the last few months, but with the greenback up, energy is down for now. No takers, no real dip buyers, but many traders are whipping the group around. It has been a good “trading” group.

xme3 300x145 Some Sector Red Flags and When Dips Stop Getting Bought
XME

Metals & mining are also rolling over. No dip buyers yet.

rth1 300x145 Some Sector Red Flags and When Dips Stop Getting Bought
RTH

No real validation of a breakdown at all yet on retail. Friday was bad, but as I said, one day does not a trend change make. It bears watching though.

The charts on steel (SLX) and coal (KOL) look very vulnerable too. Technology (XLK) is struggling, with names like AAPL and GOOG weak and AMZN showing signs of quitting. AAPL and GOOG both got rejected and sold at moving average resistance on Friday, another sign of waning conviction.

We live in a world now where keg beer gets poured from bottom to top and tomatoes grow from top to bottom, so it’s easy to get caught on the wrong side. So much also depends on the direction of the greenback, so all of these moving parts will certainly make the balance of this year very challenging. If the dollar does decide to roll over again, this pullback will have been nothing more than a great buying opportunity, Stay tuned. Good trading and watch your levels.

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Joe Donohue

Joe is a full time trader with 25 years experience. He is a senior contributor and investor in Stocktwits and has been seen on CNN Money and quoted in Marketwatch, Forbes, Reuters, NY Times and Wall Street Journal.