A market between moves

The week closed looking pretty constructive, especially the S&P 500, but when I go through individual stocks the action does not match what the indexes are showing. There are big gaps almost every day, so many charts are wide and loose. There is currently a lack of setups.

Anything that breaks out has been fading aggressively. Even in the recent strong stocks where we have seen rotation like cyber security are not trading cleanly. There is not heavy selling everywhere and the market is not falling apart, its just an extremely difficult environment to make progress in.

That difficult feeling where nothing works and your equity curve slowly grinds down is always a sign to have patience, not press harder.

From my experience, the action in individual stocks and the leaders usually tells you more around market tops and bottoms than the indexes do.

I have to stay open-minded because I am wrong all the time, but right now the S&P 500 and Nasdaq look much more constructive than the market actually is. A lot of that strength looks concentrated in the biggest mega-cap holdings (that have previously been lagging) and it almost feels like they are propping up the indexes while individual stocks get beaten up one by one.

April and May were completely different. Stocks would break out and follow through, new positions would quickly give a cushion, and there was clear direction. I did not have to convince myself the environment was good because my trades kept telling me it was good.

I remember I posted this tweet below and it was very relatable. There were so many setups you felt like you didn't have enough money to buy.

Sometimes its really hard to notice environment shifts as they happen fairly slowly so I encourage you to check back on April 12th's report for a reminder of how completely different the environment currently is.

Cybersecurity, software, med tech, different groups have started to take the lead recently and some of the cleanest setups are coming from those groups. There are individual stocks within them that are very high quality.

But do I believe these are the groups that lead the market into its next strong leg higher?

I don't. Each time I have seen strength move into these areas, the overall market has usually been more difficult like it has been recently. Maybe I am wrong and this time is different, but I still see it more as rotation while the prior leaders rest though and not a sustainable trend.

I still think the next real leg higher will be led by semiconductors, the same way they led us here.

When semis were going almost straight up through April and May, the most bullish thing I wanted to eventually see was the group stop, rebase, and get ready for another move.

Now we are getting that and the process does not feel very bullish because rebasing is usually choppy and uncomfortable while it is happening.

Stocks like AMD, ASML, DELL, and MRVL are still near their highs and are not doing anything wrong. The strongest stocks from this trend are making themselves known even while the group rests.

If the market is going to begin another strong leg higher, these are the stocks I expect to lead and where I would want to position. I still need the bases to develop and the setups to become clear though. Having a thesis is not enough reason for me to force trades before the stocks begin inviting me in again.