Bulls Need to Be Swift and Act Defensive

There are times for offense and times for defense.

Technical Edge — 

• NYSE Breadth: 25% Upside Volume

• NASDAQ Breadth: 32% Upside Volume 

• VIX: ~$29

Coming into this week, it “felt” like they wanted to push the market higher. The pieces to the puzzle fit, as we were coming into the EOQ rebalance, were due for an oversold bounce, sentiment was in the toilet and the seasonal stats were very bullish. 

However, yesterday I noted that the bond performance was not inspiring. Why were bonds rolling over the last few days when stocks were not? This was a concern because they have been highly correlated this year. 

Talking with a friend over the weekend, I was a bit more relieved to see a nice rally in the Semiconductors — but that was a one-day move and now it also concerns me. We’ve talked about it here before, but I like to view the semis as a leading indicator. To see them lagging the indices is not promising. 

Game Plan — S&P 500 (ES & SPY), Nasdaq (NQ), Oil, XLE, Dollar

I am not saying bulls need to be defensive by buying defensive stocks. What I’m saying is that there are times to play offense — like by reclaiming key levels — and times to play defense — like leaning on support.

Right now, it’s time to play defense. If the bulls can hold support and regain possession, then they can play offense. But that’s not the case right now.

S&P 500 — ES