Tuesday, May 12, 2009

The Cyclical Weak Link

I really don't have much to add from last nights post. Pretty much the same applies after today. No winners today although it felt a bit more bearish than bullish today and another semi-sell-off at the close. It does feel like the bull has run out of steam but we need confirmation as mentioned last night. First, 895 has to be broken. Then the VIX has to cross the 20 day MA which makes sense because the VIX is just a confirmation indicator, not a leading indicator.

What is interesting about the market is the cyclical nature of it and certain sectors are driving it up or down. When financials lead the market, the market makes its largest moves up. When technicals lead the market, the market makes nice advances but not like when financials lead it. When health care or energy lead it, as they are now, the market tends to stay flat.

If you noticed today, financials really wanted to pull the market down but the market held it up. I find that interesting and not sure how long that can last. It goes to show the financials need some sort of catalyst to move up via news, government programs or false earnings reports in order to advance. Without either, financials head down. It shows the health of financials.

I took some profits today mid day but reducing some short positions. I want to see confirmation of the move down before I add them back. I may miss a little, but I have reduced my risk in case of a surge up to the 200 dma.

I added a position today in CAF which is a China Financial ETF. If I am going to be long, it won't be on U.S. stocks. I believe CAF will fall if the U.S. market falls but it will fall less and will likely move up higher than U.S. financials if there is a move up. It is also a great long term play.

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