Defense Was The Right Call

October 14th I wrote the following –

“You’d Better Know How To Play Defense Real Soon”

Right on!

Indexes were at or near significant resistance and prices had risen too far too fast. Market Internals were deteriorating, some leaders were failing big on earnings and several sectors were starting to implode. I booked a lot of my September/October gains and am looking to reload in November.

Institutional Selling
Mortgage Finance is testing the lows of March!
Financials broke the 50-day – BAC, GE, WFC, JPM, GS!, RY
Regional Banks look worse – STI, STT, ZION, RF, KEY
Retail is starting to break down. Leaders ARO, JNY, GYMB, JOSB, CRI, UA
Home Builders and Home Imporvement are breaking – XHB, HD, TOL, RYL, PHM
Airlines have totally broken down. AMR, LCC, CAL
Railroads are cracking – BNI, UNP
Casinos have topped and are rolling over. Look at BYD!
Steel Stocks have imploded. X, AKS, SCHN, NUE, STLD
Biotech is nose diving – AMGN, CELG, BIIB
Healthcare is blowing up – ILMN, PSYS, CYH
Semiconductors are now definitively below the 50-day. STEC, BRCM, VSEA
Disc Drives are failing after earnings. WDC and STX broke the 50-day today
Semiconductors and Disc Drives always lead!
China. Holy cow, look at high-growth Chinese companies!! FUQI, EJ, SOHU, SNDA

Look at Austria today! South Africa (EZA) looks similar.

Brazil was done huge today (EWZ). So was the Emerging Markets Index (EEM).

What This All Means
For the first time since March, we are getting some serious selling and some sectors are now off the radar for future purchases.

I expect the next rally to have fewer sectors and companies participating. I also expect larger companies to start to lead smaller companies as the big boys look to buy liquid holdings ahead of the next Bear Market. I will also continue to focus on late-stage Bull Market sectors – Energy, Gold…

I expect a lot of money to be taken off the table on the next leg up. The last few weeks, I have had a lot people ask me when they should be selling. I don’t think many of them sold the last few weeks and they will get very anxious over the next few days, thinking they have missed the top and need to get out - the now or never panic of fear...

I will be looking to buy any panic selling in November, in anticipation of a Year-End rally. After that, all bets are off. If the move is accompanied by another spike in the price of Oil and a spike in Gas above $4 per gallon, then the Bull Market will probably be over and the next leg of the Derivative Implosion will smack us in the face.