Market conditions
I have made a small addition that I am experimenting with to the “industry cycle starts” chart. In addition to showing the breakdown of industry cycle starts for a given date, I am also showing the breakdown of the industry cycle highs. I am still testing out how this will play out and if it will aid me in my trading, but I thought it was an interesting dimension to plot that might help me in determining when to the press the gas pedal and when to take it easy. Here is what the updated chart looks like now:
You still see cycle starts in red, but in green you can see the cycle highs. So a vast majority of industries hit their breadth “high points” on Friday. The chart continues to confirm that the cycle started on April 17th, and the industries had a strong reaction up since then. Here is what the overall breadth breakdown looks like:
What I like about the high on Friday is that it came after a bit of a pullback. Nothing major, but it’s nice to see a breather followed by another, stronger move up. So far, so good in the cycle picture.
Industry Highlights
As is usually the case at the cycle starts, it’s very hard to find a “standout” group. Almost everything is moving up. I could select a few industries to highlight, but it seems to be pointless at this stage. Everywhere you look, stocks moved up last week and everything is pointing up. If you started building long positions for the cycle start, you most likely had a good week and added some cushion to your profits. The key for me here is to stay patient and watch how the breadth moves and not panic if another pullback arrives next week. Since we are at a major “cycle high” point, a pause or pullback wouldn’t shock me, you just have to keep your mind open for all the possibilities.
Struggling industries
Metals, mining, and oil weakened last week and have been giving me mixed signals since their previous strong run. As soon as I thought that their run was over, they jumped after just a short pullback. As soon as that run started to show promise, all the metals and oil have pulled back. This “thrashing” could be normal before another big move, or it could be a signal that this is all that we will get in those sectors for the time being.
It sounds silly, but price action based trading is often like this. There are no 100% outcomes, you have to pick the pattern/stock/industry you have identified as giving a greater potential for profit than loss. Make your move, and if you’re wrong, get out, and if you’re right, stay tight.
There are some other pockets of weakness that stood out, starting with Recreational Vehicles:
This one has been beaten down quite a bit, judging by how low the percentage of stocks above their 200 SMA trendline is. Here are some of the stocks that I track as part of this industry:
ticker, company, sector, industry, country
THO,"Thor Industries, Inc.",Consumer Cyclical,Recreational Vehicles,USA
BC,Brunswick Corporation,Consumer Cyclical,Recreational Vehicles,USA
DOOO,BRP Inc.,Consumer Cyclical,Recreational Vehicles,Canada
PII,Polaris Inc.,Consumer Cyclical,Recreational Vehicles,USA
HOG,"Harley-Davidson, Inc.",Consumer Cyclical,Recreational Vehicles,USA
LCII,LCI Industries,Consumer Cyclical,Recreational Vehicles,USA
WGO,"Winnebago Industries, Inc.",Consumer Cyclical,Recreational Vehicles,USA
MBUU,"Malibu Boats, Inc.",Consumer Cyclical,Recreational Vehicles,USA
Real Estate - Development industry is next, another one that has looked quite weak:
There is no discernible participation from this industry in this cycle, and the SMA200 line looks wobbly now and has been trending down for some time. Here are some of the tickers in this industry that I track:
ticker, company, sector, industry, country
VTMX,Corporacion Inmobiliaria Vesta Sab ADR,Real Estate,Real Estate - Development,Mexico
FOR,Forestar Group Inc.,Real Estate,Real Estate - Development,USA
SDHC,Smith Douglas Homes Corp.,Real Estate,Real Estate - Development,USA
LSEA,Landsea Homes Corporation,Real Estate,Real Estate - Development,USA
And finally, Medical Distribution:
It had quite a drop in its SMA200 line, combined with a very low SMA20 line. This industry was quite strong in the recent past, so it could be just a short-term digestion of the recent gains. I might keep a closer eye on this one and see if a recovery and a new move up might be starting soon. Here are the tickers I track in this industry:
ticker, company, sector, industry, country
MCK,McKesson Corporation,Healthcare,Medical Distribution,USA
COR,AmerisourceBergen Corporation,Healthcare,Medical Distribution,USA
CAH,"Cardinal Health, Inc.",Healthcare,Medical Distribution,USA
HSIC,"Henry Schein, Inc.",Healthcare,Medical Distribution,USA
PDCO,"Patterson Companies, Inc.",Healthcare,Medical Distribution,USA
OMI,"Owens & Minor, Inc.",Healthcare,Medical Distribution,USA
Closing thoughts
From a personal trading standpoint, my long holdings over the last two weeks have increased substantially, while the rise in the markets triggered many of my short position stops. This is again a normal behavior in my portfolio where it rotates between long and short depending on the overall market conditions. I am STILL suspicious of this current cycle due to how short the pause was in-between the cycles. But I am not one to argue with the market and will take what it gives me.
Hope you have a great week in the markets!