Markets registered negative reversals once again Tuesday and this recent pattern of starting on highs and going out on lows is becoming more concerning by the day. It could be a classic “sell the news” as tax reform now looks imminent. The overall trend is still higher but some signs are perking up. The S&P 500 is still comfortably above its bull flag trigger breakout above 2600 but today for the second consecutive session CLOSED well off intraday highs. It is the benchmarks first three day losing streak since early August between the days of 8/8-10. The Russell 2000 is behaving frantically as the last 3 days alone have traded within a 3% range and is now trading into the bullish hammer from last Friday which bounced off round 1500 number and 50 day SMA. Being a trend follower includes taking the pain, of course as long as positions are profitable, and accepting the drawdowns that are inevitable. Are we in the very early stages of possible sizable losses? We do not make predictions but simply let price be out navigators. Although trends are more likely to persist than to reverse, they will do so at some point. Let price be that informant and not outside noise.
Looking at individual groups it was technology that was the only major S&P sector to eke out a gain on Tuesday, and of course Monday it was the worst performer. Bulls can hardly take solace in that fact as the XLK fell 1.6% Monday and rose a scant 3 pennies today. It did however manage to find support at an upward rising 50 day SMA. The dull and supposedly boring utilities were the worst actors as the XLU slipped up by 1.3%. The ETF is on a current 9 week winning streak but looking at a potential bearish engulfing weekly candle depending on this Fridays close. On a shorter timeframe it has encountered trouble following the bearish dark cloud cover recorded on 11/15 and has now lost more than 2% the last 3 sessions, all on above average daily volume.
As the markets worries begin to accelerate, the bulls seemingly are able to grasp on to fewer and fewer bright spots. It may be temporary, but one group that is showing strength recently shrugging off the weakness is the paper packagers. Name likes ATR, IP and BMS have been holding their own and that could be a good indicator of the economy humming along. Of course the economy and stock markets do not always act in harmony with each other, but watching this group could pay handsome profits down the road, pun intended. Below is the chart of GPK and precisely how it appeared in our Wednesday 11/15 Game Plan. One can see on the monthly chart the visually appealing digestion for almost 3 years now of the prior uptrend that occurred between 2011-15. Keep this name on your radar for names that breakout from long bases as they are keen not just be more success prone, but often achieve more upside.