Overview

This was one of those weeks where if you'd been paying too much attention to the daily swings and noise around the Fed and quarterly earnings, you could have potentially opened yourself up to some impulsive behavior and later regretted it. The news and commentary was breathless, but at the end of the week when you look at what happened within the context of a longer timeframe, you wonder what all the fuss was about. Here's the S&P on a 3-year weekly:-

We've barely retraced the ground of the last few weeks, which longer-term bulls will argue is impressive to have given back so little, and shorter-term bears will point to the many divergences on individual stocks accompanying this move and say there's room to move as low as 2,000. Both fair points. We'll see.

The Dow ($DJIA) is sporting a similar pattern, while the NASDAQ ($COMPQ) had a tougher week of it, breaking below its 10 and 40-week MAs, after getting hit with weakness in both technology and biotech.

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In terms of the major indices however, that weakness seems isolated to the NASDAQ, as the decline in the Russell ($RUT) was also relatively modest, merely giving back the previous week's advance.

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On a relative basis the $RUT is still pointing in the right direction vs the $SPX, having started to outperform 11 weeks ago.

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As much as I could, I stayed away from the news and daily commentary this week. I'm already disciplined enough not to act on it, but in the past just seeing some of the nonsense that's said and written has frustrated me, so this week I tuned it out even more than usual during the key announcements.

When it comes to earnings, the prices I'm interested in aren't those during amateur hour after hours, they're the ones 24 hours later, at the close of the following trading day. Everything prior to that is noise.

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Sector Analysis

Of the nine S&P Sector SPDRs, the leading pair remain Industrials ($XLI) and Materials ($XLB).

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They're followed by Consumer Discretionary ($XLY), Energy ($XLE), and Financials ($XLF), not a bad mix of sectors to be leading the market. Utilities ($XLU) and Staples ($XLP) both improved after their recent weakness, while Healthcare ($XLV) and Technology ($XLK, below) slipped lower and are testing their 200-day MAs.

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Away from the Sector SPDRs, Biotech ($IBB) was lower for five days straight, stopping at its 50-day MA:-

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Semis took a dive back to their 200-day:-

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while Gold Miners ($GDX) cleared the tower and are somewhere over the Atlantic.

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One thing to add here using the example of Materials, is that they still have a long way to go before they are near their old highs, but that hasn't stopped us finding some very strong names for our timeframe over the past two months. Something I mentioned last week bears repeating here. It's true there are fewer stocks making all time highs, but that doesn't mean breadth is deteriorating. There are fewer all time highs because the sectors that were leading and making all time highs for weeks on end (Utilities and Staples) have since turned lower, and the sectors that are leading now are making significant headway following multi-month declines, but they are still well below their all time highs.

The good news is you don't need to wait for all time highs to participate in those trends. You can also take signals at multi-week or multi-month highs, and after a major downturn or year-long stealth bear like we've had, those will often be the signals you get at first.

We've already benefited from having exposure to several names that were above their 20, 50, 200-day MA's, with successive higher lows and higher highs, and were making highs on a multi-month basis. Believe me, you would struggle to find a materials or energy stock at all time highs at the moment, but they have been no lesser opportunities for that. The overriding principle is to look to whichever stocks and sectors are leading for your timeframe. Don't let a top-down view on the overall market keep you from taking a perfectly good signal on an individual stock.

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Alpha Capture Portfolio

Our portfolio enjoyed some solid outperformance this week, its biggest for 8 months, climbing +1.8% while the S&P fell -1.3%. Maybe if we get a second one next week we can call it a trend.

That takes it to -2.3% YTD.

It's continuing to recover, slowly but surely, and the real message here is even if the market environment we've already endured for over a year isn't over yet, as tedious as it's been to live through, we've done what's been necessary to survive it and be ready for what's next. What did it cost us? A few percent? I'll take it. If you're not able to make money, the next best thing is to not lose too much until you're able to make money again. It hasn't been pretty but we've done that.

This week we took one exit and had two new entries. We're up to 14 positions and open risk of around 8%.

SUBSCRIBE FOR NEW PORTFOLIO SIGNALS, ADDITIONAL TRADE IDEAS, AND A COMPLETE WATCHLIST.

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Watchlist

We already have a fairly full allocation of portfolio names and additional trade ideas, so there are fewer names on this week's watchlist, but the leadership is clear with strong representation from Industrials, Materials/Energy, and Consumer Discretionary.

Here's a sample from the full list of 20 names:-

$ITW

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$NUE

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$ATW

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$XOM

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$FB

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$FIZZ

SUBSCRIBE FOR NEW PORTFOLIO SIGNALS, ADDITIONAL TRADE IDEAS, AND A COMPLETE WATCHLIST.

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