Before I position myself or act in the market, I weigh the evidence in front of me.
It’s my main job. It’s all I think about.
It’s how I make market calls, and it is the basis for my trading and investing decisions.
It’s also my most difficult job. I think any strategist or investor would agree.
The truth is… In technical analysis, there is no special indicator. There is no secret sauce.
We’re all looking at the same charts.
And it doesn’t take a rocket scientist to discern between an uptrend and a downtrend. Or a top versus a bottom.
That’s not where disagreement is sewn among us. That's rarely what makes one technical opinion or market view differ from another.
It’s about how we weigh all of the different data points.
It’s how we put together the puzzle.
This kind of expertise comes from time in the market, and different experiences through different cycles. It comes from the lessons you learn and the mistakes you make over the years.
Like to never overlook certain risk-on groups…
Economy-stocks like capital markets, banks, and transports are full of information. Even some small-cap industries are great for this.
These critical subsectors lead or move with the business cycle. They tell us about the health of the economy… And more importantly, the market.
For me, two groups of stocks stand above the rest when I build my puzzle. They are homebuilders and semiconductors.
I weigh these groups more than any of the others.
You literally do not have bull markets without them.
On the flip side, when they roll over, the broader market usually goes with them.
And I think that’s where we are right now. These can’t be massive tops.
These charts have to hold if the bull market in US stocks is to rage on.
Semiconductors against 200 and Homebuilders against 100. Shout out to round numbers.
SOXX and XSD look more or less the same in this manner. And so do both the homebuilder ETFs, ITB and XHB. Just draw a line at last summer’s low in all of them.
If we lose these levels, we lose these critically important subsectors, and the bull market is toast. It’s really that simple.
If semis and homies complete these tops and enter new downtrends, I can’t be bullish US stocks. It’s a deal-breaker.
On the other hand, if bulls can dig in and make a save here, these could be some epic scoop ‘n score patterns.
I’m leaning bearish and in favor of them being tops this time, but I’m open to anything.
Let’s see what happens next.
Steve
P.S. We’ve been adding short exposure to our Breakout Multiplier portfolio in anticipation of these tops printing.
We already sold half of our homebuilder puts for double what we paid. We’ll sell the rest for a lot more if we get a reaction leg lower in the coming weeks. I’ve unlocked the original trade idea post, which you can read here.
If you like what we’re doing and want to take some shots on the short side with us, join risk-free.
