Markets recorded a weak session Tuesday with the most concerning the Russell 2000 breaking down. We have discussed at length recently how we have hinged our bullishness of the overall markets on the health of the bull flag in the aforementioned index. It did register a bearish reversal on 11/1 after an intraday move above the flag on to finish sharply off the days highs. It is a good reminder why we pay very strong attention to CLOSING prices. The next big test now is the initial retest of the rising 50 day SMA following the cup base breakout above the 1450 trigger in late September. Perhaps this is just a bull trap phase after the failed breakout, but bears should be feeling as energized as they have in months after today. Adding to the bearish narrative today was the lagging Nasdaq which slipped .3%. Of course the benchmark is still 200 points above its upward sloping 50 day SMA. The Dow and S&P 500 ended flat.

Looking at individual sectors there was a clear move to safety today with the utilities and staples performing the best with the XLU gaining over 1.2% and the XLP just behind adding 1.1%. Both of these traditional defensive groups have bifurcated with the XLU is right at fresh 52 week highs and the XLP is 7% lower than its own, however it recorded a strong session just missing a bullish engulfing candle. It is hard not to think of the utilities as a growth group these days. Lagging were the financials which have every right to a prudent pause with the XLF losing 1.4%. It is now filling in a gap from the 10/19 session which also doubles as a bull flag breakout. One industry to keep an eye on is the healthcare arena with the XLV now looking like a bear flag is taking shape. The fact that it is forming below its 50 day SMA gives the bears more to salivate with. It has not gravitated that far from its 50 day SMA and is only 3% off most recent 52 week highs, but bulls would like to see a quick reclaim of the important line. Some individual names recorded big losses Tuesday including GKOS SUPN NVRO FPRX and MNK, with all dropping by double digits with the exception of NVRO which slumped “only” 9.75%.

We are not ashamed to admit we are big believers in the candlesticks. I will of course state they come secondary to PRICE action as always but they often give vital clues as to what can potentially happen. Now unless you have been living underneath a rock this year one is well aware of the retail woes. Sure there have been some names that have been trying to right the ship, but when so many holes have been penetrated on the deck the incoming water just becomes to heavy to ignore. There have been some stout winners but when these leaders begin to show signs of wear and tear the whole group could be in trouble. One laggard that looked as if it had potential of turning the corner was CROX as it zoomed past the very round 10 number the week of 10/20 jumping more than 10% in firm volume, but has since slumped almost 20% the last 2 weeks. Below is the chart of TIF and how it appeared in our Wednesday 10/11 Game Plan and it shows how bearish candles in somewhat quick succession could prove to be tough to overcome. Dark cloud covers and engulfing candles as short term interim tops are proving enlightening.

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