Rotation Report: Polarized Market

All of a sudden the market is becoming polarized. We don't have a consistent list of concerns, we have segregated lines of thought. Here are a few examples:

Deal fever is taking over biotech. Is it euphoria or the beginning of a straight line move? We're the only major economy on a strong dollar policy and talking about raising rates. What effect does the endless rate cutting across the world have on the global economy? Is the rate trade starting to fall apart? What about all this talk of a venture capital bubble? What a jobs number headline that was... but the meat of the report disappointed. The Transports never confirmed the recent rally. Does that even matter?

I highlighted some great reads on these topics and more in the SeeItMarket linkfest

As for trading, it's wait and see mode on the long side. More downside quickly wouldn't be surprising. Who knows after that. Let's dig in..

Small caps continue to struggle and frustrate. This could be a nasty bull trap shaping up. Or just a pullback to support.

Various measures of volatility suggest we are still much closer to greed than fear.

Breadth has taken a dramatic turn. In three sessions we've gone from A/D line highs to near the lower band. The first takeaway is we may be near a short term bouncing point. We saw a very similar move in September, but at that time breadth failed to confirm the new equity highs.

I've been vocal about the lack of Dow Theory confirmation of late. Here's a contrary look. Over the last year the dow transports and industrials have essentially the same return. In essence, isn't Dow Theory searching for a displacement between the two? Also, is it be harder to create a displacement between the two with all the etfs out there?

For the first time in over a year, short term momentum in the 30 year treasury yield has meaningfully crossed above intermediate term momo. It's a rising rate environment!

TIP is spending a ton of time on this critical support line. Are TIPS in for a dramatic fall? #whatinflation

Group Action

The internet index has stalled out at horizontal resistance. 68 looks like an interesting level to look long again.

The rate trade is getting crushed now. Everything was roses less than two months ago. Now we've seen dramatic changes that may be hinting at a long term shift.

Note XLU RS has lost trend support, but we're now at horizontal support. This ratio likes hard levels, perhaps it's time for mean reversion?

Note this false breakout in soft drinks. They are a DANGEROUS group to be long. The confluence of blind rate chasing and folks wanting defense after two market crashes has bid the valuations up to long term unsustainable levels. Watch the lower support line.

This is a nasty formation in the brewers. Note the declining RSI. Now THAT is a momentum divergence. It's another staple group vulnerable to a sharp decline.

Are the home builders going to hold this breakout? It's a group absolutely worth watching.

The 6 plus year decline in the biotech ratio has broken and actually strengthened Friday. This could mean there is still some speculating to do in the group as the smaller more broad names out-perform the large widely held names. Note the action in 2007-8.

Overseas

The world index could be viewed as a false break of the highs. We'll know more shortly with a confluence of support and moving averages within a percent or so.