It’s Messy Out There

The market’s been a hot mess this past month. Failed breakouts are piling up, with prices slipping back into their ranges and falling below key overhead supply zones.

Beneath the surface, the average drawdown for S&P 500 stocks stands at 18.2%, and the weakness is spreading across major sectors and industry group indexes.

It began with lagging areas like metals and mining, which have already rolled over, and now, groups such as banks are breaking below their prior cycle highs.

Let’s break down the choppy action and highlight the struggles across various groups to hold their breakouts.

Let’s start with the Equal-Weight Consumer Discretionary $RSPD:

One of the most important sectors is threatening to return to the range.

This weakness has been driven primarily by homebuilders, which are already down nearly 20% from their highs.

Even the leading subsectors in tech are retreating, threatening to result in a failed move.

Here’s what the equally-weighted Software Index $XSW looks like:

180 is the line in the sand. If it breaks below that level, more sideways action is likely.

Small-caps? 

Same story. 

They tried to break out last month after going nowhere since 2021, but the move failed, and they’re back in the penalty box.

This chart tells me that they need more time to build up steam before anything meaningful happens.

Then there’s Dow Jones Transports $DJT:

Prices have fallen back into their old range. Bulls just couldn't hold their ground.

And even in crypto land, the story is the same. 

Solana is struggling to push through its 2021 highs.

That’s not a coincidence. There’s too much supply at this level, and demand just isn’t strong enough to overpower it.

All these failed moves describe the type of the current corrective phase we’ve been in the last month. 

Until we see prices reclaim their highs, sideways trends are likely to persist.

We’ll know when it’s time to press the gas again. Until then, just let the market sort itself out, look for relative strength and sector rotation.

These kinds of messy environments are great for selling strategies like Strangles and Iron Condors.

Our Chief Options Strategist Sean just put on a new trade on Biotech $IBB—perfect for this kind of chop. 

Join All Star Options and get the details of this trade risk-free.

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Have a good week, everyone!

Alfonso