Good morning traders,
The market has spent the last 3 days in tight, textbook consolidation. We have seen the typical and expected sector rotation as traditionally defensive sectors have slightly outperformed on the dip. Healthcare, of course, has been in play due to the recent political maneuvering, and we have also seen Industrials hang on to a bit more of their gains than we might have expected. Because of that, this sector is front and center for me as a swing trader if the market turns back up to rally into the end of the year.
The situation in the precious metals complex is interesting. If these markets were really strong, silver probably “should have” regained its highs fairly easily, dragging the laggards with it as well. The fact that we have not seen this strength, coupled with the presence of some very visible support on daily charts of the futures (for instance, GHC11 support ~1368-1370) has me on the lookout for a higher timeframe flush in the precious metals over the next 3-5 sessions. Do not underestimate the power of a commodity market to move when stops are hit. Of course, there is a good chance this will not materialize, but it is worth watching because if it happens, it could be dramatic.
The US Dollar is also in the forefront of my thinking, but we are probably wandering slightly outside the scope of this morning note. Equity markets around the world traded lower overnight (with exceptional weakness in the South Pacific); India and Taiwan being the only markets currently in the green.
Today, I am expecting further consolidation on the major indexes, but I will not fade a rally. I believe there is a good chance the market could break out of consolidation within the next several sessions, and I do not want to be on the wrong side of that move. I think the correct “levels” to watch are actually visible as trendlines (not horizontal levels) on the hourly charts of the futures, but I also do not want to be caught trading a simple breakout of a technical structure in consolidation. I am watching a handful of specific names this morning, but also Financials and Energies in general. Of course, Gold and Silver are on my alert list, and if there is a real move there I will shift most of my focus to the metals and miners. If we continue to consolidate today (which is the highest probability play), I will trade lightly and look for only the best opportunities. This game is largely about playing defense until good opportunities present themselves.
