When something sudden happens in the market, like the recent sell-off, it’s important to look back on it… take a deeper dive… and figure out what might be leading the way down.
A good place to start?
The S&P Index Futures.
Specifically, the individual stocks and sectors within it (and their particular structures).
Doing this will absolutely make you not only a better Futures trader, but Stock, Options, and ETFs as well.
Here’s how…
STEP ONE: The Vulnerable Uptrend
I’m still viewing the broader average in the S&P as a very fresh uptrend that’s contending with a double top that’s on the other side of all time highs. This isn’t anything to snuff at either, Gang. It’s a significant level to be taking out all time highs.
So it’s vulnerable.
But as of Tuesday, we’ve ended up with a pretty dramatic turnaround.
So what was leading the way lower?
One way I highlight this really effectively is with a layout I use all the time in the Future’s Room — the SPY multi charts. It’s really simple to use, and I’ve highlighted that and added additional analysis in the video below. Just click on the image to play the video.
Now when using the SPY multi charts, you can either use the broader averages for the ETF or Futures, and then you’ve got the ‘big name’ players on your screen (like Microsoft, Apple, Amazon, and Facebook). Remember, these do shuffle up from time to time — that’s okay.
Why’s this so effective?
It shows you the top 10 (or 11) in the S&P, and how they look at that exact moment.
STEP TWO: Individual Sector Breakdown
Now looking at this tells us what?
Well what seems to be some of the more negative factors are the Facebook sell-off and Amazon. What else? Things that look relatively bearish, but there aren’t a lot. Now remember though, this is a pretty dramatic, sudden move to the downside.
So if we aren’t getting indications as to why the market sold off from the ‘big name’ stocks, where do we look next?
Individual sector breakdown (I talked about this at the very beginning briefly).
This next step takes us to looking at things like the XLK, QQQ, or XLV (Health Care).
Now in the video above, I continue to walk you through this sector breakdown as well. But, immediately when you look at the XLK, you see a little bit of bearishness in some names by way of their organization on the 8, 13, 21 EMA. Then in the XLV, two of the top three names have clear double red bearishness.
Since the market sold off while this sector was predominantly bearish… keep an eye on Health Care.
Continuing with this sector breakdown, you could also look at the XLF (Financials) sector.
That shows you several other bearish stocks, like American Express. However, not everyone likes playing bearish stocks, I get that. This look can also be used to identify any hiding bullish stocks. Same principles, Gang.
STEP THREE: Where’s The Market Going Next?
After looking at both individual stocks and sectors within the S&P, this is hardly a market that looks like it’s ready to roll over. There isn’t a lot indicating ‘big names’ are ready to give up just yet.
However, I wouldn’t say my analysis is all technical, or even fundamental, or data driven. Now you may be thinking to yourself, “But Raghee you love data.”
Don’t forget we’re out here waiting for word on the US China trade war as well as the potential impeachment proceedings that are weighing on Wall Street (to name a few). As I’ve said before, these aren’t things you can measure — they’re not macro.
So currently, we wait… and see how heavily this weighs on the market.
