From the desk of Tom Bruni @BruniCharting

This post is a follow-up to today's Chart of The Week, so if you've not read that I'd recommend doing so before continuing with this deep dive.

From the desk of Tom Bruni @BruniCharting

Technology is the largest sector of the market from an indexing perspective, but it's also pervasive because it finds its ways into other sectors/industries and often plays a big role.

With that as our backdrop, it's clear why Technology's relative performance is an important barometer for the health of the market...and it's been quite good since breaking out to new highs in 2016.

So can it continue, or are we due for some TECHnical difficulties in the weeks and months ahead?

We look at a lot of intermarket relationships and try to analyze the same things, but from different perspectives. It's all part of the weight of the evidence approach that we so often preach. Today we're focusing in on the relative strength (or weakness) in Consumer Staples as a heads up for the next move in the US Stock Market.

Consumer Staples are funny bunch. Think about it like this: regardless of how bad the economy might get, as a society we're still going to brush our teeth, wash our dishes, smoke cigarettes and drink beers. Those are Consumer Staples. They tend to be less volatile and underperform when stocks in general are going higher, but outperform when stocks are selling off, for the same reasons.

This chart here really shows this powerful relationship. Normally when we look at relative strength, we like to put the asset or sector in question as the numerator. But to really see the high positive correlation, we flipped the ratio below so the S&P500 is the numerator and Consumer Staples are the denominator. So if the chart at the...

I love it when steady dividend payers breakout to all-time highs. What's better than a stock breaking into blue skies and paying you a dividend to hold on? In the recent All Star Charts monthly conference call, JC uncovered an opportunity in an insurance company stock that has us thinking about profits. Sure, we options traders don't get to collect any dividends, but it is nice knowing that yield-starved savers will keep a bid under stocks like these as long as interest rates remain comically low.

Weekends are great to just take a step back and see what is actually going on. It's really easy to get caught up in the day to day noise. I talk about the power of Monthly Chart Reviews. This is a similar process, just done more frequently and timeframes are shorter-term. But the taking a step back part follows the same philosophy.

Here are a few things that I'm thinking about this weekend:

I've been in the camp that this 20-month consolidation in the U.S. Stock Market is just that, a consolidation within an ongoing uptrend that started in early 2016, or 2013, or even further back depending on who you ask. I already made my case.

When you factor in the global market conditions, which I've done here, this is an environment where I believe it's easier to get paid buying stocks, not selling them. That could certainly change. Energy could roll over again, Small-caps and Transports could lose their former lows and new downside leadership can emerge. While I think that is the lower probability outcome, it's always an important exercise to consider the other side.

Today we're making the bear case and presenting the evidence that most points to a bearish environment in Q4 and one where we're better off selling stocks, not...

In this Episode of Allstarcharts Weekly, Steve and I talk about how the spike in Crude Oil earlier this week is impacting Energy Stocks. When we look specifically at the Oil & Gas Exploration & Production Index, prices broke down below the 2009 & 2016 lows, only to quickly reverse back above. We also saw this happen in the Oil Services Index. Prices of the $OIH broke below the 2001 lows only to get back above it swiftly. I think if we're above 24 in $XOP and 14 in $OIH, we want to err on the long side. If we are in fact seeing a mean reversion in Energy Stocks, I would image Crude Oil will most likely be flat to up in that environment. The levels are set, now let's see how this plays out!

All else being equal, when deciding between two or three viable trades, I'll often choose the one that offers me the best opportunity to neutralize my "greeks risk." Meaning, if my overall portfolio is leaning a little long delta, I might favor the new trade that is short delta. If I'm long a bunch of premium and therefore have a high negative theta score for my entire portfolio, I'd likely choose to add the trade that offers me the most positive delta. My thinking being: if I can neutralize as many greeks as possible, then I put myself in position to let the individual edges and risk-reward ratios play out in my favor without getting negatively affected by any sudden changes in the overall market.

This also applies to timeframe.

A quick scan of my open positions today revealed that I have a relatively high number of open positions with October, December, and January expirations. But just a couple with November expirations. So taking an idea from All Star Charts' September Conference Call, I've found an opportunity that we can play in November.

The mean reversion we outlined a few weeks ago has been playing out, but now the major indices are running into sellers at very logical levels.

With that said, one area looks particularly vulnerable at current levels, Pharma.

Tuesday's Mystery Chart received similar responses, with most people looking to get long if prices were able to hold above support.

Now, let's look at the chart and levels.

From the desk of Tom Bruni @BruniCharting

Tuesday's Mystery Chart is one of my favorite charts right now, so thank you all for your feedback and participation.

It seems almost everyone was on the same page here, getting involved in some way, shape, or form on the long side.

With that as our backdrop, let's get into it.