The Markets

Most of the major indexes were down on Friday. The Russell was down the most 0.53%. It has been an index that has been lagging for a while. The Nasdaq was the only index that was up, 0.22%. Why? NDVA had strong earning and Amazon has now moved up to $961.90. That has been moving up strongly for a while and was up 1.45% on Friday. Netflix was up 1.43% and also Apple was up again, 1.4%. That trade has worked out spectacularly for my elite students since I called that to the upside a week ago.

Retail sector weak

The Nasdaq is still staying strong and leading the market up. It closed on Friday around a resistance pivot point, 5687. The S&P 500 also closed near the floor trader pivot point of 2390. As I said the IWM has been showing some weakness and closed below the pivot of 138. The IWM is the problem child of the stock market. It is only up 2% this year, compared to the Nasdaq which is up over 17% year to date. That is a huge divergence between the Nasdaq and the IWM. Retail is the reason I’m concerned about the markets. The Nasdaq is at all-time highs, but the Russell 2000 is struggling. Meanwhile the S&P 500 is in the middle, not really doing a lot. You would have expected the Russell 2000 to have done well after the Trump election. He talks about big infrastructure spending and many of the stocks within the Russell 2000 would have benefited from infrastructure spending but it hasn’t taken off. Look at the retail index XRT, it is also down year-to-date. The retail sector has been performing poorly. The reason retail is such a worry is because retail accounts for some 70% of the US GDP. Also the financial and transportation sectors have stopped moving up. They had rallied the hardest after Trump first came in. Energy is also down 10% year to date, yet another issue. You can see the fall in energy on the XLE index. There are a lot of concerns there.

A time for caution

If we look on the Barchart website we will see that only 60% of Nasdaq stocks are not above their 50 day average, again a big concern. So a great many Nasdaq stocks are not moving higher. The VIX is a way of looking at sentiment through volatility. It is at an all-time low, but I believe we could see a very fast move higher. Yes, we have call options on the VIX. There are multiple factors that lead me to be concerned about the markets, which at is why I am not trading heavily right now. We have many successful trades recently hence I’m being cautious. I’m leaning more to the downside, however if the market was to suddenly move up (the Nasdaq breaking to new all-time highs) then I’ll trade what I see and not what I think. I just have to let the market tell me what it wants to do. But given the weakness of retail and other variables I am cautious that the overall market could have a short sharp move to the downside.

I am in a couple of bearish options and I am happy with those. We have the monthly options expiry date come up this Friday and that is a good time to review current positions. Remember it is not the money you make but the money you keep!