Currently there are no stocks that meet our criteria for inclusion on the Focus List. The severe breakdown in gold and silver this past week have resulted in the removal of both the Sprott Physical Gold Trust (PHYS) and the Sprott Physical Silver Trust (PSLV) from the list. Meanwhile, the general market continues to deteriorate as money has rapidly moved out of financials, home builders, travel, metals, agricultural, cyclicals, semiconductors, etc. and into high-PE, high PE-expansion stocks consisting almost entirely of cloud software names, something that strikes us as another WTF moment in a market that climbs the newly proverbial Wall of WTF.
The S&P 500 Index broke below its 50-day moving average on Friday on heavy quadruple-witching options expiration volume, and while some will use options expiration as an alibi for the heavy volume, the fact is that many leading stocks have been breaking down severely while Treasury yields fall, the dollar spikes, and commodities dive, some of which seems to be in contradiction to a more hawkish Fed. This may indicate, however, that the market realizes that the Fed cannot raise rates much, and if there is an interest rate raising cycle coming it will likely be the shallowest rate-raising cycle in history as the economy may not be in a position to withstand higher rates. This may have been one reason why the dollar rallied and Treasury yields fell - money around the globe, which is starving for yield in a world of zero to negative interest rates, may see a 10-Year U.S. Treasury Yield at around 1.5% as quite a bargain, thus precipitating a move into dollars that are then used to purchase U.S. Treasuries. At the same time, a spiking dollar has a deleterious effect on commodities, particularly precious metals.
The NASDAQ Composite Index failed on a breakout attempt on Thursday when it reversed back to the downside on Friday on heavy options expiration volume. This could play out as a possible double-top given the spreading weakness in other areas of the market.
Meanwhile, the Dow Jones Industrials Index busted its 50-day line earlier in the week and split wide open by Friday while the small-cap Russell 2000 Index joined the S&P 500 by breaking below its own 50-day line on Friday as the chart of its proxy the iShares Russell 2000 Index ETF (IWM) shows below. Overall, the major market indexes look bearish at worst, highly cautionary at best.
The Market Direction Model (MDM) remains on a CASH signal.
Brooks Automation (BRKS) was reported on a Short-Sale Set-Up on Wednesday as it breached the 50-days moving average. It rallied briefly into the 50-day line on Thursday before breaking lower on Friday. For now the 50-day line remains as a trailing stop while we look for the prior 86.03 low as a potential downside target and near-term cover point.
Western Digital (WDC) was also reported on Wednesday as a Short-Sale Set-Up as it broke below its along its 20-day exponential moving average. It then briefly paused at the 20-dema on Thursday before triggering a secondary short-sale entry at the 50-day moving average and then continuing lower on Friday. We are now watching the prior 64.09 low as a potential downside target while the 50-day line now serves as a reasonable trailing stop.
Short-selling generally works best when it works the easiest, and that has certainly been the case over the past three trading days with BRKS and WDC. We have not seen short-sale set-ups work this well this quickly in a long, long time as the short side of this market has mostly remained a very quick, short-term affair where downside moves are fleeting and often resolve in the stock reversing back to the upside and higher highs. The action of BRKS and WDC, along with many other leading stocks this past week may be telling us something about the current market environment, and we would certainly heed these warnings if still long any positions at this time.