The system is down 2.02% from its recent equity high while $SPY is down 1.63%. It appears that the system may be in the process of catching back up with $SPY.

The top 5 Fidelity Sector Funds, as currently ranked by the system:

1. FPHAX (Pharmaceuticals)
2. FSPHX  (Health Care)
3. FSPCX  (Insurcance)
4. FSDAX  (Defense and Aerospace)
5. FBIOX  (Biotechnology)

It is worth mentioning that FSDAX has moved into the top 5 for the first time this year. It closed today at a new all-time high. I’m not sure what that says about Syria, or the sequestration, etc., but I believe it is worth thinking about.

The system is currently long FSPHX, FPHAX, and FDFAX. Unless FDFAX can surge back into the top 3, it will be sold in the next few days.

Best10+: A Portfolio Management System for Very High Returns

Testing the Ivy-10 Portfolio Ranking Score

The Use of Recession Indicators in Stock Market Timing

Is the AAII Sentiment Survey a Contrarian Indicator?

Some of these articles, and more, can be found over at The Whole Street.

The latest high tight flags are below…

The good news is that both indicators are now aligned which means I feel comfortable looking for a tradeable bounce. This means I expect a bounce that will last 3 to 5 days.

So the bounce lasted 3 days and we have fallen for 2 days. The indicators are again pointing to a tradeable bounce. But will we get the bounce again?

The short, honest answer is I don’t know.

There are examples of the indicators working over and over again in rapid succession. See September and October of 2012 in the chart below. However, when the market is correcting, eventually a lower low will occur. I believe the market is in a corrective phase, so it makes sense to me to expect lower lows. Will they come after another tradeable bounce?

A couple of factors worth considering: The 50 day average will act as an area of support, and the expectation is NOT for the economy (or the market) to completely fall apart. Those of you who remember well what it was like to trade from 2007 – 2009 should note that we are not staring down an Armageddon. Instead, the odds are that we are simply having to shrug off a garden-variety market correction. If you didn’t trade during the Great Recession, then you should be accepting that market corrections are just part of the game.

We are focused on the green “decline line” indicator and the red “number of stocks above their 5 day moving average” indicator. Both are aligned at levels that typically indicate an imminent bounce that may last 3 – 5 days.

My best guess is that we see some stabilization around the 50 day average. I would not be surprised by another quick and small bounce. But ultimately I am expecting $SPY to trade beneath the 50 day average, within a week.

CLVS  
ESI 
IQNT
LAS
MNKD
RVLT
SPWR
TSLA
VNDA

Below are the top 5 Fidelity Sector Funds as ranked by my Fidelity sector fund rotational system.

1. FSPCX (Insurance)
2. FBIOX (Biotechnology)
3. FSPHX (Healthcare)
4. FPHAX (Pharmaceuticals)
5. FSCPX (Consumer Discretionary)

I still find this to be a weird mix. I’m not sure what it says about the coming Obamacare implementation, if anything.

Year-to-date, the system has returned 13%. For the record, Sell in May would have once again not been a bad idea, assuming one didn’t sell at the beginning of the month.

$SPY has returned 15.7% year-to-date.

On the 64th anniversary of Orwell’s 1984, we find out that the government has been all up in our craw, for years. Fitting.

I don’t much feel like writing tonight. Instead, I’m taking to twitter, and burning up the NSA servers with 140 characters of anti-government ranting. Follow me if you care: @Woodshedder