Broad-Based Weakness in the Market

Hey 5-Star Trader,

Typically on Tuesdays I write a “Tuesday Trade Example” and show you the ins and outs of setups I have recently taken. However, as we near closing out the end of the year, I’ve seen some atypical behavior brewing in the market. For that reason, I think it is more important to write to you today about the state of the market.

Where are we now, and where could we end up?

On Monday we experienced a volatile start to the week. We opened up the market with a gap down and the S&P 500 (SPY) was fighting to recover all day. Thankfully, by the close, the indexes were able to pull back to normal levels. I am still concerned about the overall health of the market. I am seeing big cracks forming under the surface.

The semiconductor sector and cloud stocks are demonstrating weakness despite former relative strength, and the FAANG stocks [Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple, Netflix (NASDAQ: NFLX), and Alphabet (NASDAQ: GOOGL)— formerly known as Google] are all quiet as well.

In terms of strength, Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) are doing their best to hold up the entire market, but it appears they are alone. Most other stocks that make up the SPY are taking a turn for the worst. While I am still bullish on AAPL, it certainly can't keep going higher forever. If or when momentum wanes, which it looks like it's threatening to do right now, I would expect the Nasdaq to pull back further as well.

Currently, I’m reading the Monday performance as a more broad-based weakness, rather than concentrated. This means there aren't relative strength sectors standing out.

Keep your eyes out and tread lightly until we get a clearer market picture!

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