Warning: Choppy Market Ahead

by JC Parets  -  March 8, 2019

The market has been a one-way street since late December, but things are potentially changing.

At the index level things are a hot mess, but under the surface we’re starting to see traffic moving in both directions.

That’s perfectly normal — stocks go up and down — but these are some developments worth paying attention to.

Let’s take a look at what we’re seeing, starting with the major indexes.

A lot of the indexes look like the Wilshire 5000 right now.

Prices have rallied more than 20% in two short months, momentum finally got overbought but is diverging, and prices are sitting right near a flat 200-day moving average.

If there’s anything we know about flat 200-day moving averages, it’s that they cause headaches. There is a lack of trend here, so why try to force it?

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Even the strongest stocks need to rest every once in a while.

Veeva Systems (NYSE: VEEV) is a great example. It has rallied more than 50% off support and broke out to new all-time highs.

Look at the massive bearish momentum divergence though. This likely needs to be worked through before the stock can head higher.

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Ulta Beauty (Nasdaq: ULTA) has rallied 42% off its lows and is right back near all-time highs.

With momentum diverging, a breakout attempt without any consolidation has failed breakout written all over it.

We’d much rather it digest the recent move and then attempt to move higher.

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We also saw massive breadth thrusts in many of the indicators we track, like the percent of S&P 500 stocks above their 200-day moving average.

It’s moved from sub-15% to just over 60% in a short period of time. A pause would or a little pullback would be completely normal.

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Just because the indexes are not trending doesn’t mean there aren’t any opportunities in individual names.

We’ve been picking out great long opportunities since January, and applying smart risk-management to them.

There are sectors and sub-sectors that stand out to the upside, some that stand out to the downside, and others that are a hot mess like the major indexes.

Whatever side of the tape you’re looking to trade, have at it, because it looks like we’re back to a two-way market for a while. And that’s not a bad thing. For experienced traders, it’s a welcome development.

To wise investing,

J.C. Parets
Editor, Big Market Trends