It's a Market of Stocks

When it comes the broad market, it's ugly out there and Mr. Market isn't offering up many opportunities but there are still pockets of strength if you know where to look. 

They key right now is to remain patient and not force trades but if you are going to trade it makes sense to stick with sectors and industries that are outperforming the market.

Here are some sectors that are outperforming the S&P 500 (SPY) and NASDAQ (QQQ) the last few weeks: Agriculture (COW.TO), Oil/Gas (XOP, XEG.TO), Regional Banks (KRE), Homebuilders (XHB), and Biotech (XBI).

There's something else I've been noticing lately that is worth watching. The number of stocks making new lows is actually declining while the S&P 500 and NASDAQ continue to make new lows.

As you can see the majority of stocks made new lows back in June so it's not quite as bad as the headlines would have you believe.

What about investor sentiment? What's it telling us about the state of the equity markets?

Well, Investors have been bearish for quite some time. Check out the latest AAII survey over the last four weeks along with retail put option buying last week...

With sentiment this bearish where do you think the asymmetric opportunities are? Long or short?

Investor sentiment data is just another "tool" in our investing and trading took kit.

It can give us a solid idea of how investor's are positioned and a snapshot of the psychology of market participants. However, it's a horrible tool when it comes to timing.

The sentiment has been bearish for weeks and many including myself have been expecting a tradable rally but the price action in the major indices has yet to respond. However, at some point it will and will you be ready?

What are you looking for when it comes to a potential bottom in stocks?

Let us know what you think.

We'd love to hear from you.

Greg R.

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Nothing in this blog post should be considered investment advice and is provided for educational and entertainment purposes only. The commentary and information represent the opinion of the author and are not recommendations to buy or sell any security or investment product. The author may or may not hold positions in the securities and investments mentioned. Full disclaimer here.