About Those "Shitty" Stocks

Here are Shippers, breaking out above a 15-month downtrend line from their 2018 highs. Momentum is finally overbought and prices are back above a downward-sloping 200-day for the first time in about a year. After some slight downside follow-through, prices stabilized and rocketed higher.

Click on chart to enlarge view.

We saw similar action in the Casinos & Gaming space, with prices stabilizing and moving higher; now sitting at roughly 6-month highs.

Here's the Construction subsector stabilizing relative to the Consumer Discretionary sector.

What were looking like "layup short setups", instead turned into another turnover by the bears. We've seen potential short setups across International Equity ETFs, Major US Indexes, Sectors/Subsectors, Individual Stocks, etc. all simmer out over the last few weeks.

In many cases the bias is no longer to the downside, but that doesn't mean it's to the upside. Neutral is probably best, but the action is constructive nonetheless and cannot be ignored.

So what does this mean for the broader market? It depends who you ask.

1. Bears will say quality stocks have already run aggressively and are extended, so money is flowing into riskier names that are playing catch-up. This means the recent advance in the broader market is likely closer to the end than it is the beginning.
2. Bulls will say sector rotation into weaker areas is a sign of improving risk appetite among market participants. It allows extended areas of the market to consolidate and set up for the next leg to the upside. Corrections through time > corrections through price.

Which camp is right will only be available in hindsight, but given the corrections through time rather than price in many areas of the market I'm leaning toward the latter. If you want to be short things on a relative basis or have a mandate to, I get it. But on an absolute basis, I'm finding very few setups on the short side that fit our timeframe and process.

We've tested the waters with Shippers, Casinos, and Homebuilders over the last few weeks and were not rewarded for it.

Maybe that will change in the coming days and weeks. But for now, a neutral/bullish approach toward Equities as an asset class remains best.

Let us know what your thoughts are.

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Allstarcharts Team