Markets continue to be stuck in the mud after a powerful overall advance. Sometimes it pays to at other instruments for possible clues for the next direction. It is often said that the bond market is smarter than the stock markets and it usually is an accurate precursor to what can potentially happen in the equity markets. High yield or junk bonds often carry a strong correlation with the stock market and if one glances at the JNK for hints, bearish is the message. The ETF is now on a six session losing streak and has undercut its 50 day SMA with active volume. It is looking at a potential 3 week losing streak, lower by .7% heading into Thursday as the S&P 500 is clawing for a ninth consecutive advance as the two diverge. For the bulls the Russell 2000 did its part bouncing precisely off its rising 50 day SMA, recording a bullish hammer, and that is your line in the sand going forward into year end

Looking at individual sectors consumer staples were strong today following up on Tuesday’s 1% jump, and keep in mind that was the ETF’s first gain of 1% since 7/27 to demonstrate just how weak it has been. Most likely it is just a dead cat bounce as both volume and price trends remain bearish. Technology and healthcare were the second and third best performers today and lagging were the financials and energy with the XLF and XLE falling .4 and .6% respectively. Energy is not surprisingly soft as it wrestles with the round 70 number but bulls have to be feeling sprite as the XLE rose 1.1 and 2.3% on 11/1 and 11/6 both on very active trade, and the bull flag breakout above a 69 trigger remains intact. WTI has been on a tear so it can be forgiven that its ascent has not continued given the Middle East war talk over the weekend.

As tech establishes itself as a leader, bulls are feeling a bit light on their toes. Software names have been on the ascent, perennial favorites like RHT and ADBE have been firm and CDNS is on an 8 week winning streak, and we tend to like momentum and therefore buying strength. More specifically stocks should be above their 50 day SMAs, preferably rising. Below is the chart of SPLK and how we profiled the name in our Wednesday 10/25 Game Plan. The stock is now higher 9 of the last 12 weeks and is looking for a 4 week winning streak with this week advancing 5.4% thus far, and the prior more than a combined 6%. It broke above its 50 day SMA on 10/26 and has not looked back. Volume could be a bit more energetic, but price action is hard to deny. It is acting well POST breakout from a double bottom trigger of 67.24 taken out on 10/31 and today cleared the round 70 number for the first time since August ’15.

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