The Market’s Baroque Doors, Gloomy Rooms

The doors in Santa Fe are fabulous. The older ones were made with ornate and intricate woodcarvings. Their colors conjure up the southwest landscape. People buy them and replace their modern doors for these. In contrast, these historical portals frequently open to modern atmospheres. In the market, a similar contrast can be observed. Historical portals mask a modern atmosphere. To clarify, historical data is what most technical analysts use to decide which instruments they should invest in, hence “enter.” However, using historical data to “enter” into our modern market environment can be tricky.

When uncertainty rules the roost, investing in a market masked by fabulous doors can prove disorienting. Last week I shared the 6 weekly charts of the Modern Family. All except the Retail (XRT) brick and mortar sector remain in bullish phases on the weekly timeframe. On Friday, Prodigal Son Regional Banks (KRE) opened the door to a weak warning phase by testing the upward sloping 50 week moving average. Was KRE’s test of the bullish phase the fancy façade of a buying opportunity, or a cautionary tale about what might be on the other side? For longer term trend following, we will look for a price break below the 50-WMA, with the slopes neutralizing to pointing south. Therefore, with positive slopes in 5 out of 6 of the Modern Family’s 50 week moving averages, the historical portal opens to the notion of a correction rather than a top.

Nevertheless, as history may not necessarily be the best predictor in our modern world, be prepared to exit as quickly as you enter. I’m particularly interested in how Sister Semiconductors (SMH) perform this week. In a confirmed warning phase, SMH’s basket typifies the 25 US-based mega-cap semiconductor companies. While SMH was dragged down after Nvidia reported earnings, others in that sector such as Texas Instruments, Intel, and ASML Holding NV remain bullish and near the highs. I go with Semiconductors as my fancy portal for now, as it serves two very important functions as a market predictor - First, technology is not going away anytime soon (unless we blow up the world and revert to using sticks and bones.) That means the price of these companies’ stocks give us the information we need to assess any dichotomy between a baroque door and a gloomy room. Secondly, the SMH sector is highly speculated. It led the market higher this year with volumes of buyers. Should that volume of buying cease and desist, consider it the best reason to make a fast getaway.

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