FLS Update: A Little Weakness Brewing… 04/11/2017

Market Update:

Once again, what we told you in this report for the past few weeks, came true: watch the 50 DMA line! Earlier today, the major indices briefly sliced below that level before the buyers showed up and quickly defended support. Remember what we wrote last week, “the 50 DMA line is nothing more than a psychologically important area of support that many people watch. The reason why it is important is because so many people watch that level. That, in and of itself, causes a big shift in psychology and, in turn, a shift in buying/selling. In physics, the term observer effect refers to changes that the act of observation will make on a phenomenon being observed. That is partially true with the 50 DMA line. If you back-test the 50 DMA line (just a simple strategy whereby you go long when the underlying asset closes above it and short when it closes below it), the results are poor. But the fact that so many people watch/talk about the 50 DMA line and use it as an objective reference point – has made it an important area of support to watch.” For now, big picture, the bulls remain in control as long as that level holds. It’s ok if it breaks for a day or two but the real test will be what happens by Friday’s close (on weekly basis). A bullish scenario would be to see the market opened lower and then rally and close higher by Friday.  

Little Weakness Brewing:

Underneath the surface, we are beginning to see some weakness show up which we highlight in recent weeks but it is not going away. The big “concern” we have at this juncture is that nearly all the major financials (WFC, JPM, GS, MS, C, etc) have turned negative for the year. We are entering the beginning of earnings season and that could easily change but until it does- it is important to note what is actually happening. Attached is an annual chart of GS, so you can “see” what we “see.”

Key Levels To Watch:

Just to reiterate, what we said in recent weeks, “Once again, the major indices are testing the 50 DMA line. If that level breaks, in the short term that would not be healthy for the bulls. The market is getting a little top heavy here as it pauses to consolidate a very strong post election rally. Last week, we mentioned that other macro markets have already given back their post election rallies which means stocks could be next. Additionally, watch the Russell 2000 as it continues to under-perform in the near term and tends to lead its peers. A little defense is warranted until the Russell gets back above its 50 DMA line.” 

FLS Portfolio:

Thankfully, the FLS portfolio continues acting well. The service raised its stops again in recent weeks as the major indices remain somewhat choppy. Here is a snap shot of the portfolio as of this writing (3:37pm EST):

The service owns:  ICE +4.66%, ADBE +16.74%, BABA +12.70%, SPY -0.80%

The service will exit: ICE @58.75, ADBE @ 119.57, BABA @ 103.36, SPY @ 231.47

Working Orders: