Weekend Review 02/13/2015

Punch Out

For the past six weeks trading the market on my time frame has been more akin to punching a wet paper bag, only the bag jabs back, and inside is Tyson.  Break outs were failing, those that moved were muted, and neither dropping down in size nor increasing scrutiny of entries seemed to make a difference.  The chop and slop market was better suited for dog paddling or wading than trying to ride a wave.  It was to say the least a frustrating period which in itself was informative because it reminded me that when I most wish to turn away in disgust is when I should be paying the most attention to signs.

Unfortunately the market never informs when it's going to be chop chop death by a thousand cuts and it may take a while before this begins to become increasingly apparent.  A daily of the $COMPQ shows the chop since December and it wasn't until mid-January that it started to become clearer what was going on.  The general market was becoming more volatile with large daily swings to the upside and down where trading with tight stops resulted in one day being in and the next out.  Defense oriented sectors we're making new highs as REITS and Utilities dominated my list.

$COMPQ 02/13

Not only has the past two months been increasingly challenging to trade, much of the previous year had it's nuances as well.  The Russell stepped off the stage in January 2014 and while occasionally making an appearance, disappeared for longs stretches of time.  Much of the universe I trade was stagnant or dormant and misidentifying this action lead to some inefficiencies in vehicle selections for trades.  This board year long base/chop looks to be finally punched through this week indicating to me for the first time in a while it's time to become hyper-aggressive.

$RUT 02/13

Over the past two weeks there has been a significant sector rotation occurring as the stocks making fresh highs has shifted from utilities and REITS to Software, Semi's, and Retail.  This is broadening out as well, and themes for this year are beginning to emerge from cyber security to aerospace that might be playable for the remainder of 2015.

52-Week Highs by Sector

ATH by Sector

It would not surprise me going into a shortened trading week to seem some rest in the market as the move over the preceding three days has begun to extended some shorter term breadth signals.  A pause will be welcomed here as a number of earnings plays the past few weeks have had significant gains and some consolidation will set them up for another leg.  My focal point for building out a watch list this week will be seeking out strong recent earnings with 25% plus moves over the past month or two with young trends forming and notable sector strength.