Despite a 60 point advance since the March lows, the market is hitting its head on resistance, and for the first time during this bull market, the relationship between bullish and bearish stocks has remained negative despite mostly improved technicals.   The fundamentally heavy Power Gauge ratings of the underlying stocks in the S&P.  Though we trade what we see, not what we think, AA and I are cautious about what the summer months will bring.  The Chaikin Analytics data is setting up for "Sell in May and Go Away" in our opinion. 

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Every week, we take a look at the relative strength of ETF's across all asset classes and check  the Power Gauge ratio of bullish to bearish underlying stocks in each so that we can develop our market posture for the upcoming trading week.  This is especially critical  with earnings season upon usere's our take on current  market conditions : 

• US Stocks - Neutral, with weakening Power Gauge ratings and choppy technicals.   Analysts have been taking estimates down ahead of earnings.   Is it enough?
• Much stronger US small caps.  The strengthening dollar is not an issue with companies whose earnings are US based.  Bullish rated stocks are outpacing Bearish ones by a 2:1 margin.  Meanwhile,  the PG ratio remains below 1 on the large cap index. 

• Commodities, energy and other basic materials are not reflecting surging world wide economic activity.  We think Tech could make an outsized downward correction as companies scale back capex plans.
• The dollar is breaking out of consolidation and appreciating.  Multinationals will gripe and use it as an excuse to lower forward guidance.  
• Healthcare continues its run as the strongest US sector. Drugs and Biotechs remain strong.  Consumer Discretionary stocks benefiting from lower prices consumers paying at the pump and Financials showing relative strength in line with expectations for higher interest rates.  These companies are the ones likely to offer encouraging guidance and earnings pops. 
  
• Europe and Far East stock markets starting to outperform the US, with China having gone parabolic.  Printing presses are running overseas, while the Fed waits for its chance to begin raising rates despite softening economic conditions.  

Our plan:  add international ETF's showing positive relative strength vs. US.   Maintain current US stock positions positions but with tighter stops through earnings and what we see as a volatile late Q2 and 3.   We'll look to add banks, drugs, insurers, retailers and medical service providers on positive forward guidance  and Very Bullish power gauge ratings.   We'll calls spreads on Energy, Basic Material and select Tech stocks as the market gets oversold in late April and the Vix moves higher.  We expect "Sell in May and Go Away" to be a prevailing theme into the summer months.  We're cautious and expect volatility. 

After a decidedly choppy year, our portfolio is beginning to turn the corner and head in a positive direction.   Remember, the Chaikin system requires 3 - 6 months for the average investment to play out, and having the bullish market conditions helps.   Today, we managed our stops and brought them 2 ATR below the long term Chaikin trend.   No new buys for us today. 

With the Power Gauge ratio at one of its lowest points of the year, and market technicals looking weak we're being cautious about new trend-following trades.  A sector that's suddenly gotten hot over the past few months is Telcom, and today we're adding Broadcom to the Chaikin Power User Portfolio.  Here's why we like it: 

• Strong sector, strong industry group and strong fundaments (Very Bullish Power Gauge)
• Money Flow positive for the last several months, indicating institutional accumulation
• The market agrees with the Power Gauge, and relative strength is also positive.
• Oscialltor Oversold and an Oversold Buy signal today indicates a lower-risk entry point. 

We'll set our stop at 2 ATR below the Chaikin Trend and will consider getting out before earnings on May 4th. 

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Today, we're attempting to sell a call spread above the market on a money flow sell signal.    Why we like the trade: 

• Market conditions are neutral to bearish.  We need to hedge our long portfolio.
  
• Deere is in a weak industry group
  
• Money flow has turned negative
  
• Price is below the long and short term Chaikin averages.
  
• Relative strength agrees with the Power Gauge.  
  
• The stock can rise a little, and we'd still potentially make our max gain.  That's the beauty of spread trading, and our risk of loss is defined.  
  
• Options spreads are high probability trade.   We get a good win rate using Chaikin signals. 
• Sell the May 90 Call; Buy the May 92.5 Call.  Max profit occurs when price stays below at the sold strike, plus the credit received, at expiration.

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