Reversal For The Bears But Dips Should Be Shallow

Two days of pause by the bulls as I described on Monday. That creates a “buy the dip” situation in the strongest markets. The downside in the S&P 500 is another 1% lower. That’s a trade I will take.

The Russell 2000 is below. Yesterday’s action was a strong downside reversal which is only confirmed if there is follow through selling today. Looking at pre-market trading, that is not the case as the bulls look ready to thwart the bears fairly quickly.

Take a look at one of my key sectors below, semiconductors. That is an epically powerful moves over the past three weeks. I have not loved semis for some time and we have only traded the sector once or twice for the short-term over the past few years. We do and have owned a few stocks, but smaller size overall. All this is not because I don’t think it’s a great group to own. Rather, it is because the risk/reward set ups have not been there. I would rather miss an opportunity which I do all the time instead of buying where I do not feel the odds are in my favor.

I have written about software and Bitcoin a number of times, articulating that they were dancing to the same tune, both peaking well before the market and bottoming earlier as well. Software (below) just visited the last peak the bears made a stand. As expected, the group backed off. Weakness can be bought for a move this quarter into the upper $90s.

Finally, I have been writing about the disconnect in some of our models. As expected into strength, our aggressive models that were on the wrong side of the market were stopped out and reversed this week. Our intermediate-term models remain very close, but have not reversed although our model exposure in those models remains in the 80-100% range. Our conservative and balanced models have been positive and at maximum exposure for most of the month.

On Monday we bought XLE, RYVNX and RYTNX. We sold RYRSX, RYTPX and some RMQHX. On Tuesday we bought RYRSX and more RMQHX. We sold RYVNX, PCY and SPYQ.