The Week Ahead + Watchlist

On the fundamental side of things, the inflation narrative has taken hold in the main stream press and is now in full flight. In some ways it might even be a kind of self fulfilling prophecy:

(2) On top of that, we had some news last week that put the spotlight on some of the weaknesses in the economy ( CPI + Retail Sales) & the fact that the solution is a necessary, but bitter, pill that must be taken (Hawkish FED).

So there is a legitimate “wall of worry” for the market to climb. So how do we deal with this? How do we, as individual investors/traders, position ourselves?

Answer: Just follow the money. If there is anytime that you should be focused on price action it is now. The tide of opinions and predictions and prognostications is getting larger and it is more important than ever to stay focused on the signal and not the noise. The price & money flow is the purest of signals.

(3) Here is where the money is flowing to and from:

Sure looks like a flight to the relative safety of Utilities, Health Care, Consumer Staples/Basic Goods etc. The money, as of now, is flowing into the companies that provide the essentials of daily life. Thats pretty clear. No confusion there. Right?

(4) As for the broad market action, all of last week’s trading was still inside the rage of the previous week. Yes, the S&P backed off the highs in dramatic fashion and the headlines and pundits made sure you knew about it. But the truth, according to the price action, is that we have not really gone anywhere. Check out this weekly chart of the S&P:

The arrows:

1-The high of the previous week

2- The low of the previous week

3- Showing that last week was an inside week i.e it was inside the range of the previous week.

More importantly, if you cast your eyes back a few weeks to when the market first got above that lower red line, then you will see that we haven’t gone anywhere in all of 8 weeks.

So why the panic? This looks like rotation to me. A situation where the old leaders ( most Tech & Discretionary names) are sold and the staples etc are bought.

I can’t get really bearish unless/until the week that we close below the lower red line on high volume. I think it is very possible that we will see that his week.

At that point, a “risk off” position would be justified using the SPY & VXX positions as laid out in the watchlist below . Until then, just focus on the new leaders.

7) Here is the watchlist ( more trades will be added in coming days)

NOTE: As usual, you are FREE to use the Watchlist as you see fit. You DO NOT need to wait for my alerts but please Remember that: 

(i) Only trades/signals dated 12/11 and later ( up to today)  are valid for new entries/positions. 

(ii) The stock must close above the trigger price ( for Long trades)  or below ( for Short trades)  in order for it to be considered as ” triggered” 

(iii) Size your trades correctly and don’t trade money that you can’t afford to lose. 

(iv) I may not take all of these trades for my own account.  As usual, I will send an alert for the trades that I am taking.  Here is the Watchlist:

See you tomorrow