Although the S&P 500 has been down three days in a row for the first time since September 24, the weakness has been quite mild and is not suggestive of a market top. On the contrary, this looks more like healthy consolidation and profit taking before another possible push higher.
There are some issues with the underlying action. Breadth has not been strong and the number of new 12-month highs is at very low levels for a market so close to lows. There has been some particularly weak action in sectors like oil and cannabis, but it has spread. Retail was hit on some poor reports from Home Depot (HD) and Kohl's (KSS) , but Target (TGT) helped to offset.
One group that needs to be watched closely here is semiconductors (SMH) . There were several 'sell' recommendations in the sector yesterday, including Applied Materials (AMAT) and KLA (KLAC) . The sector closed at its lowest point in 14 trading days. Chips have often marked a turn in the market and if they continue to see pressure and further lows, it may warrant a reaction. The good news is that the negative sentiment has not spilled over into other areas of the market, so far.
I've often written that strong markets tend to stay sticky to the upside. They don't just suddenly collapse unless there is a surprise news catalyst of some sort. Last fall, the turn in the market was triggered when the short volatility trade suddenly blew up. There isn't any issue like that on the horizon right now, although many market players seem to think the China trade issue could send the market into a tailspin should it fall apart again.
In one statistical study by QuantifiableEdges.com, the market is shown to be higher over 80% of the time two or more weeks later after closing over its 10-day moving average for 25 days in a row -- and then dips for one day. That is the current situation with the S&P 500 now. In 15 previous cases, the market was higher 14 times, 18 days later.
Statistical studies of this sort show general tendencies and are not guarantees. Market conditions are never exactly the same. The easiest way to suffer big losses is to put too much reliance on this sort of data.
There are plenty of other ways to look at the current technical patterns in this market and be far less positive. That is why I constantly preach that we should be reactive rather than anticipatory.
The good news is that the mild pressure on the indices isn't preventing some good stock picking. It is narrow and there aren't many themes or good leadership, but if you are selective with names like Ping Identity (PING) , Esperion therapeutics (ESPR) , DataDog (DDOG) , etc., there is opportunity.
My game plan remains the same. I'm carrying a high cash balance and I'm looking hard for new names and additional entry points. My biggest problem lately has been finding places where I can aggressively deploy my capital. On the other hand, I'm keeping my accounts as close to highs as possible and have been finding some profits. Until there is a shift in price action, I'll stick with what I'm doing.
We have a positive start to the day and a complacent feel in the early going.
