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Shorting New Highs?

Hey Market Pilot,

Wednesday was Federal Open Market Committee (FOMC) day and the market was apparently waiting with bated breath for what members had to say. While they did double the size of the tapering, the rest of the statement was largely dovish. They communicated that they were willing to be accommodative based on what the market and economy needed due to Covid-19 and whatever path the virus might take.

The market apparently took this as a good sign and promptly moved to the upside. Just before the report, I made a post to the Moxie Indicator™ members stating that my interpretation of the VIX Short Term Futures ETF (UVXY) led me to believe the market was likely to move up:

Turns out that was spot on. 

Despite all that, I still have serious concerns about the market’s health due to the poor breadth. I know Wednesday ended super bullish and the S&P 500 and Nasdaq hit at all-time highs, but the vast majority of tickers are simply not participating. And even with a strong day, heck maybe a few strong days, it won’t change the overall strength of the market. We continue to see fewer and fewer stocks showing up on the long side.

In fact, we recently had a flurry of 52-week new lows populate. This doesn’t bode well for the health of the market as the indexes are being held up by a small number of outsized names. The chickens should, someday, come home to roost if indexes like the Russell 2000 ETF (IWM) can’t get their act together and join the broader market.

Lagging is one thing, but declining and falling apart is a whole other thing and the market may not be able to absorb all this indefinitely. 

I took a look through all my lists of names after the close Wednesday and most everything looked like crap despite the strong close of the day. Sure, there was a lot of popping, but not much I could identify as a reversal, trend change, or readily buyable.

I continue to be cautious, just in case these up moves turn out to be short-able. Was today’s pullback a sign?

Your Profit Pilot, TG

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