7:30AM EST The action inside the market was a little more disturbing than the big picture numbers would have you believe. Yes, the markets were flat on the averages. That is essentially bullish to neutral given the run we have had over the last couple of months. However, the issue yesterday was the sector strength. Consumer staples and healthcare were among the leaders. These are defensive sectors that big money hides in when things get bad. Financials were weak with the (XLF) dropping 3% in spite of the news of huge TARP paybacks from some of the stronger banks. Commodities were weak. They have been the "reflation trade" of recent weeks betting on a solid economic recovery.
Staples, healthcare, financials, commodities - each of those sectors showed some troubling signs for the bulls. Even with the market showing signs of breaking down, there are ways to make some money. I am buying some puts on the (SPY) and the (DIA). The Nasdaq should show some relative strength in a weakening market. The Nasdaq companies have stronger balance sheets and less debt. They will fare better when the market turns down.
Keep some cash on the sidelines because opportunities to get long will materialize. Until next time, stay low risk..
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