December 13, 2021
There are two approaches to trades:
Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult.
We’ll get to our regular weekly sector analysis in a moment. But here it is in action today. In prior weeks we’ve noted distinct weakness in the basic materials sector, represented by the XLB etf. We said we were looking for a short-term, lower timeframe recovery in the sector to bring XLB up to a price-level where we expect the bigger picture downtrend to resume. The stage for that was set last week with a modest rally in the XLB, which brought the etf up to a region of expected downward price pressure, a short setup we shared with you. Here are the “before” and “after” slides.
Yesterday, Aug 2, price popped up to the lower, yellow highlighted region in the above chart, and immediately began to fall. We decided “to express” the trade by buying XLB puts as opposed to simply shorting XLB shares. The interim results of the trade using both instruments are shown in the chart below:
Here’s today’s sector rundown, starting with Sector Performance charts summarizing the last trading week (chart 1), followed by a screen of sector performance based on the behavior of short-, medium- & long-term moving averages (chart 2). These help us find trend-following, high probability setups, like what’s shown with XLB above and our GRMN trade which we summarized a couple weeks ago.
In Chart 2 below, the moving average performance screen shows the state of the 20-, 50- and 200-day SMAs in each sector and how price sits in relation to each SMA. Week-to-week changes in SMA status are highlighted (for the close of 7/30 vs close of 7/23).
Look for our preliminary list of potential trade candidates Tuesday and two high quality setups Wednesday before the market opens!
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