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May 20 Market Wrap

Posted on May 20, 2009 by Adam

Stocks gave up early gains, led lower by financials and technology.

I think you have to follow the sectors in order to gain an edge right now. I read once that the sector a stock is in controls 50% of the price movement of the individual stock. With that in mind, you want to try and go long stocks in strong sectors and short in weak ones. I keep a list of all the sectors here, where you can look at the charts.

It seems to me that the S&P may be forming a lower high. Depending on how you draw your trendlines, you may consider the upward trend we have witnessed over the last two months to be broken. If that’s true, it will be confirmed if and when we complete this lower high. I’m not saying this bull run is over, but it is certainly showing signs of weakness.

Is the trend finished?

I might be too bearish, but I think we all understand the case for higher prices. After all, it’s hard to fight the trend. However, you need to keep these warning signs in mind when initiating new risk until the S&P is able to definitively continue its trend.

Back to the sector watch, I have noticed that some sectors are also putting in lower highs. That, to me, is a sign to short stocks in those sectors. On the other hand, some sectors appear to be holding up pretty well.

Hot: Consumer Staples, Healthcare, Energy, Materials

Not: Technology, Financials, Consumer Discretionary

Keep your eyes out for an article tonight about gold stocks. Happy Trading!