Featured Article

Where We Are and Where We Are Going

Brandon Wendell
Instructor, CMT

The markets seem like they are topsy turvy right now.  With news emerging from Europe and China on a daily basis that changes investor sentiment more than most people change their bed sheets, what are traders to do?  Well, calm down and trade using the tools you learned in your Professional Trader Course!

The first thing I must do when I am planning to trade is to identify the trend for the time frame I am trading.  Let’s look at the market and see what the current trend is.

The above weekly chart of the S&P 500 shows that we have had lower highs and lower lows.  This is the definition of a downtrend, not uptrend.  The market itself is telling us to short the market, not to buy it!  The same formation warned of bearishness in April to July 2011.

Turning our attention to the leading stock in the US markets, Apple Computers, we can see bearish omens as well.  I warned of this in my May 1st article, “Breaking the BRICs.”  Apple also made lower highs and lower lows prior to their earnings release.  The stock price had already told traders to be bearish on Apple going into the earnings.  In fact the earnings caused a gap up right into a nice supply zone!

From a fundamental standpoint, we can see where the money that is going into the market is being spent.  The market is currently in a “risk off” mode.  Traders and investors are seeking safety.  They are finding that in US Treasuries.  There is a very low risk of default of the US debt so they are seen as a safe haven for money in uncertain times.  Look at the current chart for the 10 Year Treasury.

bwendell 20120522 where - treasuries trend

Additionally, looking at the sectors in the stock market, money has been flowing out of the growth sectors like: technology, industrials, basic materials, and financials.  The money is moving into the defensive sectors like consumer staples, healthcare, and utilities.   The following chart shows the individual sector ETF’s and their performance versus the broad market.  When the lower blue line is moving down, the sector is underperforming the market.  If it is rising, the sector is outperforming the market.

So be sure to trade with the trend.  Intraday we will have some bullish days, but the longer time frame is decidedly bearish.  Do not fight the trend, it is your friend.

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.