From the Trading Desk

Stocks Higher as Volume Subsides

This market continues to run higher despite all the naysayers. Small cap stocks have been on a tear since mid-August. Now, IWM is overbought in extreme terms a small pullback here would not surprise us in the least. SPY and QQQ remain in their uptrends and look strong. Overall, the market may look to consolidate these gains over the next few weeks and that is okay. If we are to have any sort of sustained run you are going to see some pullbacks. It has been a long time the S&P 500 has seen a 5% pullback, but one is never out of the question in October. We continue to operate on the long side of the market as it has been the place to be. Our stops are in place to protect us from any potential nasty selling. All we can do is take what this market will give us.

Funny enough sentiment shifted towards neutral in the AAII survey. Bulls dropped to 33% as those who were neutral jumped 5% to 38%. Bears sit at 29%. We have yet to see any sort of euphoria from market participants. Sure, valuations are at extreme. However, most would expect sentiment to be over the top bullish. It is just not the case. NAAIM exposure index jumped to 96% after hanging around the mid-70s to 80s for quite some time. Active managers took big bets on the long side of the market heading into the end of the 3rd quarter. Interesting make-up with sentiment and exposure. Not much we can glean from the information, but highlights how important ignoring the noise is.

A look at a few FANG stocks we can see two are at least shaping up. NFLX with the best shot at continue to new highs. We have zero insight into the why it could continue higher only price action suggests it will continue to move higher. GOOGL is another FANG stocks shaping up. AMZN and AAPL are having a tough time still and should be interesting to watch in the 4th quarter. FB is struggling too now just sitting below its 50 day moving average. Monday’s huge drop on big volume has certainly damaged the chart.

One group continuing to look pretty darn good are biotech stocks. IBB has been trading tight in a handle formation for the month of September. It would be nice to see the group breakout. Financials continue to look well as the market is anticipating one more rate hike by the end of the year.

October can be a tricky month and we could certainly stumble a bit, but overall the market does not look like anything sinister will take place any time soon. Regardless, we have our exit strategy in place to protect ourselves just in case. We hope you have a great weekend and a great ending to September and the 3rd quarter.

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