Evening Watch List for May 3rd 2012

Mish Schneider | May 3, 2012

There's nothing better to ferret out the resolve for the bulls and frustrate the bears than a divergent gap down in the major indexes. The divergence was the fact that the QQQ and IWM gapped below their prior day low while the SPY and DIA did not. The result of such a condition is often that the bigger trend (the phase) wins. On Wednesday, that meant a choppy upward bias after a weak gap lower open.

Sure there were good reasons to gap lower, ADP Payroll numbers were disappointing, Spain's markets were sinking, and the U-turn pattern from Tuesday needed one last push lower. But the Dow and SPY refused to breakdown, and Opening Range reversal patterns gave us a clear indication that it the gap had flushed the bearish sentiment for the day.

The bigger picture, however, is that the market is waiting for Friday's employment numbers. Three of the last four day's have been more consolidation than trend and even the trend day (Tuesday) reversed. So I expect more of the same for Thursday - the 5 day range will likely define Thursday's price boundaries.

All four market watch have their own version of the same pattern that has been building for the last 5 days - a new bullish phase breaking out over a prior swing high and consolidating in a new range.

S&P 500 (SPY) Bottomed pennies from the 139.49 level suggest as support yesterday making this an extremely pivotal area now. The range to focus on is 139.40 as support and resistance at 140.79 and then at 141.66.

Russell 2000 (IWM) Continues to straddle the 50 DMA. The range to focus on is 80.50 to 82.50 and 83.

Dow (DIA) The one to be long when market rally and the only one to have and inside day. The range to focus on is 131.40 to 132.70 and then 133.14.

NASDAQ 100 (QQQ) Holding firm over its 50 DMA and trend line from the highs, but still below important daily resistance level of 67.50. The range to focus on is 66.00 to 67.63.

GLD Consolidating in a base in a bearish phase. Wait for a compelling pattern.

XLF (Financials) Right back into it's own 5 day pattern similar to the one described for the major indexes above.

IBB (Biotechnology) A nice strong inside day. There is a lot of support  at 124 now (just below its daily low), and with 3 days of consolidation it could be ready to move higher again

SMH (Semiconductors) Straddling the 50 DMA like the Q's but closed near the top of the 4 day range. If it moves higher it may trend up, but 35.25-25.33 is big resistance.

XRT (Retail) A nice strong inside day. There is a lot of support  at the 61.30 area now, and with 3 days of consolidation it could be ready to move higher again. 63.00 is a major daily breakout if it can do it.

IYT (Transportation) Nice follow through of Tuesday's good breakout of the wedge on the daily chart from the lows in Feb. and the highs in March. Let's see if it can hold above 95. This ETF could surprise traders to the upside.

IYR (Real Estate) Has had a nice move up. Now has an inside day. 63.81 is a pivotal area.

OIH (Oil Services) Quietly consolidated at a good support level on the daily chart, but remember it is in a bear phase and came off the 50 and 200 DMA on Tues. Be careful of weakness.

XLE (Energy) Quietly consolidated after a nice run up to the 50 DMA consoldation is what the bulls need as it is stuck between the 200 and 50 DMAs

TBT (Ultrashort Lehman 20+ Year Treasuries) Stuck in a range which may give it has a good base to move higher from, but with jobs data due out Friday, I'll stay away.

Longs:

I have a big list of long candidates today because the last 5 days has been building the breakout, then consolidate pattern mentioned above. Today could very easily be a holding pattern for tomorrow's jobs report, but many of the patterns are very capable of moving on their own. Plus there is the possibility that the market will move before the report.

In generally my preference for breakouts would be those that have spent several days under the FTP which include:
AAPL
LMT
LNKD
EQIX
MAKO
or those that would be breaking a daily inflection point that includes multiple days. These include (all have positive pivots and closed above them):
AAP
CRM
OC
TIBX
ESRX
BBBY
FFIV
CREE
BRCM

Since I expect a good chance of a range bound day, I'll look for reversals as well. The stocks that have positive pivots from the list above are good candidates plus stocks that have been strong but may not offer the multi-day inflection point that the list above does. These include:
CP
UNP
JWN
MJN
CF - has earnings after the close
UA

Finally...
AAPL has a bullish slingshot pattern so I'll look at it as a potential long if over the pivot, but also a potential short below the FTP.
I've repeated this list below in Mish's format.
On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Category 1: (Aloha) Positive Phase, Condition 1, 2 days under the FTPs, Risk to Previous Day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:
LNKD - must be over FTP, 107.58
EQIX - must be over FTP, 164.18
Category 2: (Pipeline) Positive Phase, Condition 2-3, 2 days under the FTPs, Risk to Previous day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:
LMT - must be over FTP, 90.58
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means candidate for Opening Range Reversal, Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry:
MAKO
AAP
CRM
OC
TIBX
ESRX
BBBY
FFIV
CREE
BRCM
CP
UNP - inside day
JWN
MJN
CF - has earnings after the close
UA
AAPL has a bullish slingshot pattern so I'll look at it as a potential long if over the pivot, but also a potential short below the FTP.

Category 4: (Rip Tide) Oversold (2 or more days under FTP), Condition 1-4, Needs to clear R1, Risk previous day low unless noted differently, Target- Day to at least 3 ATRs from entry:
None today
Shorts:
All of the shorts have negative pivots and most have rallied for several days prior to yesterday. So breakdowns or reversals are going to be a consideration.
APA
GS
UHS
BG
WLL
SWN
MPC
GDI  - Prefer a reversal, must be below PDH,64.33

I'm also watching BIDU which is very compressed and under the 200 DMA.

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