Broad-Based Weakness in the Market

Hey 5-Star Trader,

Typically on Tuesdays I write a “Tuesday Trade Example” and show you the ins and outs of setups I have recently taken. However, as we near closing out the end of the year, I’ve seen some atypical behavior brewing in the market. For that reason, I think it is more important to write to you today about the state of the market.

Where are we now, and where could we end up?

On Monday we experienced a volatile start to the week. We opened up the market with a gap down and the S&P 500 (SPY) was fighting to recover all day. Thankfully, by the close, the indexes were able to pull back to normal levels. I am still concerned about the overall health of the market. I am seeing big cracks forming under the surface.

The semiconductor sector and cloud stocks are demonstrating weakness despite former relative strength, and the FAANG stocks [Facebook FB, Amazon AMZN, Apple, Netflix NFLX, and Alphabet GOOGL— formerly known as Google] are all quiet as well.

In terms of strength, Apple AAPL and Microsoft MSFT are doing their best to hold up the entire market, but it appears they are alone. Most other stocks that make up the SPY are taking a turn for the worst. While I am still bullish on AAPL, it certainly can't keep going higher forever. If or when momentum wanes, which it looks like it's threatening to do right now, I would expect the Nasdaq to pull back further as well.

Currently, I’m reading the Monday performance as a more broad-based weakness, rather than concentrated. This means there aren't relative strength sectors standing out.

Keep your eyes out and tread lightly until we get a clearer market picture!

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