A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.
- Healthcare (XLV) remains the leader , and prognosis for future ou-tpeformance is strengthening as the trading environment gets more defensive.
- Cyclical areas of the market such as Basis Materials, Technology and Industrials are weakening. The phenomenon, even when short lived, suggests that a more significant correction than we've been accustomed to may be at hand. Q3 Earnings and Guidance (along with the Fed) could amplify or reverse what appears to be October weakness.
- Consumer Staples remain week, which is unusual for a market enviorment that is otherwise looking defensive. Moreover, Consumer Discretionary, led by retailers, are showing signs of strength ahead of holiday shopping season.
- Financials usually exhibit strength in a rising interest rate environment, but are off slighly in the past couple of weeks. This is likely a result of the rise in bond prices during a stock sell off. Utilities act opposite of financials, and general retreat when interest rates increase.
- My Take: We're in the middle of a stock pullback with few signs of a major trend reversal. Expect choppiness and pull back in high beta names, along with a flight to safety. I've been selling covered calls, writing some bearish options spreads, allowing stop losses on trend trades to get hit, but am positioning for a market bounce in the resumption of an upward trend into the holidays. Until and unless the facts change, I'm bullish in the long term but directionally agnositc in the near to intermediate term.