Trending Review for next week
Markets have now been down 3 weeks in a row and the law of averages probably indicates a bounce back in the coming week. However, they are not completely oversold yet. There are 2 events that can drive the markets next week: NVDA earnings and Fed speech from Jackson Hole.
Everything decidedly has turned more bearish this last week. The SPY is now down about -5% from its recent high. The QQQ and IWM are down over -7%. Usually when the SPY is down -5% it tends to go down more to about -8 to -12% in that phase. That does not mean it has to go straight down though and we could have some up days in between.
I am not forecasting anything as always. Just looking at the odds and the risk seems to be on the downside. I will play the markets accordingly. When the market turns, I will change my mind.
Major Markets
The DIA was performing better than the other markets. But last week was quite even with all the markets down around -2% or above. The IWM was the weakest down over -3% as we can see from the above table.
SPX Sectors
All sectors except XLE look bad. Note that even the XLE was down around -1.2% last week and the MACD read turned bearish. The XLY fell the most around -4% last week.
Alternate Sectors
These are the ETFs that I trade for the most part. Lately, my go to trades have been on SMH, JETS and KWEB. Note that FXI and KWEB trade somewhat uncorrelated to the US markets so could be interesting to track. They are now trending perfectly bearish, and a turnaround may be coming due to oversold conditions.
Magnificent 8
All of them behaving poorly and dragging the SPY and QQQ down. But we cannot just blame these high-fliers for the downturn in the markets because IWM has also been quite bad. So, at the current time there is really no leadership in the markets. XLE comes close but with the runup over the last couple of weeks it may also find it hard to lead.
Strategy
I continue to play the market to the downside. My positions are much smaller now as we may be getting closer to oversold situation. There are several headwinds and also potential tailwinds. But I think the headwinds are stronger.