Markets ended the week Friday on a quiet note, even with the quadruple witching. The leading Nasdaq still just 2% off recent all time highs CLOSED right near the lows for the daily range Tuesday-Friday. The bearish engulfing candle still looms large from 3/13 has lacked any follow through to the downside, but the tech benchmark still feels heavy. I am not an index player, preferring individual names, but going forward I will pay close attention to the Russell 2000. The potential double top now looks like a handle on a cup base, and with a potential stronger dollar policy in play with Kudlow taking the reins and the fact that interest rates look to be headed higher, should be wind behind the small cap index. Keep in mind that financials have a great influence in the Russell 2000. As well I will monitor the VIX as it is starting to acting in the bulls favor recently. It has CLOSED underneath its 50 day SMA 5 of the last 6 days, but still holding the 15 cup base breakout trigger taken out in early February. Losing the 50 day it not necessarily a penalty if it is kept in close proximity, which the VIX has done, however the longer it takes to climb back above the better the bulls will feel.
Looking at individual sectors Friday it was the lagging sectors that outperformed once again as the utilities and energy rose by .9% via the XLU and XLE. Nearly all of the major S&P sectors rose and those that did not were off marginally as technology, materials and cyclicals all fell fractionally. On a weekly basis however the picture was much more clear as the utilities were the only winner as the XLU rose 1.8%. All of the other major groups fell more than 1% so there was some serious bifurcation. The hardest hit were the materials as the XLB slumped 3.5% and the financials with the XLF slipping 2.8%. The XLU is now higher 4 of the last 5 weeks, after falling 8 of the 10 weeks prior to that. The ETF still sits 12% off most recent 52 week highs, but it has produced three straight CLOSES above the round 50 number and its 50 day SMA. On a YTD basis the staples, energy and utilities continue to be the laggards and the question is are we witnessing soft leadership, or are they just biding time for the leading groups to reassert themselves.
One has to know when to cut your losses. In fact even before one enters a trade they should know where they will be wrong and exit the position. A couple of big winners a year, made by sitting on ones hands can make up for a lot of small losses. Below is the chart of a name that looked very promising, CF and how it appeared in our Friday 2/16 Game Plan. It recaptured its rising 50 day SMA on 2/20 and then proceeded to break above a double bottom add on trigger of 43.07 on 2/23, but the breakout was hurt with a bearish engulfing candle the very next day. On top of that it recorded a bearish dark cloud cover on 3/6, this time in big volume, and since has lost 6 of the last 8 sessions. An astute trader may have trimmed his stake after a breakout failed so quick, and the evidence with the two bearish candles so close to each other. Trading will inevitably lead to losing trades. They key is to keep them as small as possible and preserve capital.