The bulls finally took a breather as stocks succumbed to some selling pressure on Wednesday. Small-caps led the way lower as the Russell 2000 ETF (IWM) fell over 1%. All sectors were down with the Industrials SPDR (XLI) falling .91% on the day. Given the run ups over the last five weeks, these declines are hardly surprising because stocks are ripe for a rest. Networking stocks were hit with weakness in Ciena (CIEN) and JDS Uniphase (JDSU). Transports were hit with weakness in airlines and rails. The Coal Vectors ETF (KOL), Steel ETF (SLX) and Metals & Mining SPDR (XME) got back on the losing track with losses that exceeded 1%. There are pockets of weakness appearing in the market as some industry groups turned lower over the last few weeks. This could foreshadow a broader correction in early February. Keep in mind that the first few days of the month have a positive bias. This is because funds collect inflows during the month (say January) and put that money to work at the beginning of the new month (early February). This means we could see some institutional buying on Friday and Monday. Also keep the employment report in mind. The markets are positioning for a pretty good number and a positive report could further stoke under-invested fund managers.
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Key Reports and Events:
Thu - Jan 31 - 07:30 - Challenger Job Cuts
Thu - Jan 31 - 08:30 - Jobless Claims
Thu - Jan 31 - 08:30 - Personal Income & Spending
Thu - Jan 31 - 09:45 - Chicago PMI
Thu - Jan 31 - 10:30 - Natural Gas Inventories
Fri - Feb 01 - 08:30 – Employment Report
Fri - Feb 01 - 09:55 - Michigan Sentiment
Fri - Feb 01 - 10:00 - ISM Index
Fri - Feb 01 - 10:00 - Construction Spending
Fri - Feb 01 - 14:00 - Auto/Sales
Fri – Mar 01 - 23:59 – Sequester Takes Effect
Wed – Mar 27 - 23:59 – Government Shut Down Deadline
Wed – May 15 - 23:59 – New Debt Ceiling Deadline
Charts of Interest: Tuesday and Thursday
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is
not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise).
We all need to think for ourselves when it comes to trading our own accounts. First, it is
the only way to really learn. Second, we are the only ones responsible for our decisions.
Think of these charts as food for further analysis. Before making a trade, it is important
to have a plan. Plan the trade and trade the plan. Among other things, this includes setting
a trigger level, a target area and a stop-loss level. It is also important to plan for three
possible price movements: advance, decline or sideways. Have a plan for all three scenarios
BEFORE making the trade. Consider possible holding times. And finally, look at overall market
conditions and sector/industry performance.
