There are a different types of “gurus” you might follow, including those who claim intimate knowledge of Wall Street firms and CEOs, hindsight traders who conveniently disappear when the tape goes against them, and those who push themselves to put in the work on a daily basis to determine whether the market offers and edge and where. We are hell-bent in both the Weekly Strategy Session and 12631 to be the latter types of traders.
Here is a portion of last week’s Weekly Strategy Session well before many traders started shorting or turning cautious in front of the big, bad Fed announcement. There had been a clear technical trend in place, and that should have trumped any fear.
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However, a sign of a healthy, sustained uptrend would be to see more and more of what we saw late last week, with high volume breakouts in the materials and financials, two sectors that had not done much in a while. The first chart below is the weekly timeframe for the XLB, ETF for the materials sector. Note the symmetrical triangle breakout attempt last week. Bulls now want to see price turn $36 into firm support to help cement the notion of a major breakout here.
The next chart is the daily timeframe for the XLF, ETF for the financials. Note that selling volume had dried up in recent weeks, and buyers soon came to take what had rightfully become theirs with sellers out of the way, in the form of a high volume breakout.
Long-time readers of mine will recall that during the uptrend of the first quarter of this year I termed this type of concept “lock and roll.” In this blog post, I noted that:
During uptrends and rallies, the hottest stocks will naturally become extended. At that point, we see the bulls’ true test of mettle, in the sense that either capital rotates out of equities as a whole (bearish), or instead rotates out of the extended names and down to stocks setting up behind the leaders (bullish). I refer to the latter, bullish scenario as “lock and roll,” since traders are locking in gains from the extended names, and rolling them back to stocks set up next in line. What the bulls want to see is that continuity between capital rolling back into other stocks as the leaders take a well-deserved rest.
chessNwine has nailed this recent market period through solid analysis and rational decision making – becoming aggressive long only when the market indicated such was prudent – in the face of a hailstorm of macro BS – which is “fun” to jabber about but usually a mistake to trade on.
Thanks, Grave!