Tradewinds for Monday January 28th

This is my first post on market momentum and assessment of the basket of ETFs and stocks which I follow. The ETFs that I track were selected because they cover the broad spectrum of the market, are relatively widely traded, and can be traded with options (because I do most of my trading with options). The stocks I pick are an eclectic mix of sector leaders, momentum stocks etc. The stocks will change from time to time, but the ETFs remain somewhat constant.

You may have already picked up that I like to use the weather metaphor for discussing stocks. I like that because they are both variable, full of surprises, cyclical, and forever changing. No matter how bad or good the weather is, you can expect that it will change. It is no surprise, then, to say that today's market is in the middle of a hurricane. Nasty weather out there. But there is some good news, too. The sustained hurricane winds while not diminishing very much, are not getting any stronger, peak gusts are diminishing, and some areas on the edges of the storm are starting to see some nice weather.

My Tradewind indicator, which measures the long term strength of the market, is still at very bearish levels. My short term momentum indicator has shown a sharp improvement for the last three days, and some sectors and getting downright sunny. This indicator showed improvment even after the down day on Friday. However, because the Tradewind indicator is still very much in our face, we would look to take quick profits on any long position we take. The same would be true for any short position we would take.

The precious metals and miners (GLD, SLV, GDX, SLW) continue to have Tradewinds at their back. Previously beaten sectors that are emerging from the storm include homebuilders, real estate and retail (XHB, IYR, RTH). In fact all three of these have shown an uptick on my weekly measure of momentum. They are among the 12 of the 80 stocks and ETFs that I track that have a weekly up bias.

Agriculture is also looking favorable after getting beat up early last week (MOO, MOS, POT, CF, TRA).

Sectors that still face some strong headwinds, but have made good progress in the last week include the financials, transportation and semiconductors (XLF, IYT, SMH).

Among the stocks that I track which appear to be on a clear course to calmer waters are CSX, HERO, CCC, PCLN, AKS, GT, GLW, WFR. I have a hunch that this list will grow in the next few days.

Sectors that are still in the teeth of the storm include health care, pharmaceuticals, and utilities (XLV, PPH, XLU). Interesting that these are the "defensive" sectors that you would think would be on the upswing if a big, bad recession was coming. The only sector that has been in calm waters, but seems to setting a course right into the storm is bonds (IEF).