IWM Ignores DIA's Doji
The Dow’s proximity to its multi-year high gets all the media attention, but the good news for the bulls on Friday was IWM’s attempt go lower was followed by a market leading advance. It’s now in a confirmed bull phase.
If weaker than expected GDP numbers couldn’t pull the market down, what will? Absent so really bad earnings or a completely unexpected development in Europe’s financial mess, the market is in a good position for the bulls. It’s not overbought, and has upward momentum. The clearest way to see this is probably the weekly charts.
With so many indexes at significant resistance after a nice up week, this week we’ll start off with a bias towards looking for opportunities to buy weakness or consolidation in good trends, and focus on the short opportunities in the weakening trends.
S&P 500 (SPY) Friday was a healthy rest with some early morning profit taking as expected. I would not be surprised to see more of the same on Monday. The key levels mentioned for Friday are still in place - support around 139.40, and resistance around 141.30.
Russell 2000 (IWM) Joined the other three in a confirmed bull phase. Most notably it sold off the hardest and closed the strongest relative to Thursday’s close. On a daily basis it remains the weakest so we’ll watch it closely. Take note of the important daily gap from 4/4 it entered on Friday. Closing the gap happens at 82.93, which as markets trade, will be a key resistance area. Look for support at 81.87.
Dow (DIA) I’ll repeat my comments going into Friday, because they are even more relevant now…
…It is the closest of the market watch 4 to its March high. One good up day will push it to media grabbing multi-year highs. But it’s also at the top of a parallel channel based on the 4/10 and 4/23 lows which suggests it may be running a little too far too fast. Should it reach the highs tomorrow expect major resistance in the 132.70 area.
Friday it added a doji (read “undeceive day”) to that mix. If it gets scared of heights look for support at 131.13.
NASDAQ 100 (QQQ) Stopped right at the 67.50 level mentioned for Friday and for our subs this should be no surprise (if it is, ask for the pattern in the trading room on Monday!). This will remain an important next major level of resistance followed by the March highs at 68.50.
Look at the weekly chart’s flag. I’m not afraid to follow this one higher, but I think it deserves a rest. A rest could pull it all the way down to 66.50 which would be a nice place to look for a long trade.
GLD Friday I pointed out that it has only closed above its 20 DMA 3 times before today since its February highs, and every time it has immediately retreated to back below the average the following day. On Friday, it managed to hold up vis-à-vis that benchmark – step 1.
Next… draw the trend line from the 4/9 highs, GLD won’t make any progress to the upside without a good break of this line.
Take note of the remarkable similarities between the GLD and the FXE daily pattern since 2/28. The relationship between gold and the dollar is no secret, but its correlation is not always this tight. If you’re looking to swing trade GLD, watch the dollar too. That said, FXE is at a very volatile inflection point worth considering for a swing trade too!
XLF (Financials) Still struggling with the 15.50 area (for good reason based on its range), but it did hold the expected support at 15.42. Its related ETF, KRE, marched higher and looks much stronger. That should be a positive for XLF.
As a side note we’ve got two of its top 4 holdings in our stock focus list today – one long one short! That’s the best way to describe how I feel about XLF. Based on its second day of volume at levels as light as they’ve been all year, I’m not the only one looking elsewhere for trades.
IBB (Biotechnology) Still acting like one of the best groups in the market. Outperformed and closed at a 52-week high. It is strong, but looking a little over bought and bumping into a very significant resistance line on the daily chart based on highs in April ’11, Jan. ’12 and March ’12.
SMH (Semiconductors) Closed over the 50 DMA by a hair, and still below the trend line from the highs. It should move up with a market that goes higher, but doesn’t look ready to lead. In a weak market this has short potential.
XRT (Retail) Another market leading day on decent volume. Like many charts it is not “overbought”, the last 2 days have been impressive range expansion days that deserve a rest. Key support is at 60.70, and resistance at the 52-week high at 63.04.
IYT (Transportation) Still sitting in the wedge on the daily chart from the lows in Feb. and the highs in March.
IYR (Real Estate) Continued to build on Thursday’s “very impressive breakout of the 52-week high area”. Note how it stopped at the expected support level to the penny just like the XLF. If you don’t know this support pattern ask about it in the trading room.
OIH (Oil Services) It has been struggling to move higher with the rest of the market, but has good support around 39.
XLE (Energy) Has good support at 70.50 and a good target of the 50 DMA at 72.40. If energy moves, this is stronger than OIH.
TBT (Ultrashort Lehman 20+ Year Treasuries) After a very volatile day on Wednesday, it has spent two days compressing near the bottom of its multi-week base. If stocks continue higher this should move higher also once it clears 18.74.
Longs:
With the run up over the week I don’t see this as the time to be pushing on long swing trades. It is the time to let the ones you have run. I’ll generally take day trading risk and if we catch one that runs let it become a swing trade.
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:
None today
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:
None today
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:
DO – Inside day with negative pivots. Must be over 60.27
AGU – Prefer an OR Reversal over 88.50.
COST – Must hold prior low, 88.14
MMM – 3 days inside last Tuesday’s range. Look for breakout over 89.60. Tuesday’s high is 89.75.
TEVA – Looking for a breakout over 46.
UA – Prefer a reversal over 98
WFC – A small ATR of .58, but the weekly chart is positioned for a major breakout for a position swing trade. The first breakout objective is over Friday’s high of 34. Reversals over Friday’s low would be worth probing also. A good initial swing stop would be below 33.20, Thursday’s low and under the 10 DMA.
Worth watching from last week for OR reversals: CF, FFIV, BBBY
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:
Shorts:
CAT – positive pivots, must be below FTP, 104.38
CLF – OR reversal only. 63.30 area would be ideal.
X – positive pivots, must be below 28.40
CNX – Reversals or breakdown. Prefer a reversal. Look for resistance around 32.85. Must be below Friday’s high area of 33.15
FTNT – Must be below Friday’s high of 26.37
POT – Must be below R1 area, 43.15
NOV – Reversal or breakdown. Key resistance at 76.40 area. Key support at 74.50.
C – Inside day, key breakdown level is 33.35. Wall of resistance at 34.14 makes an OR Reversal with that level in the stop attractive. Watch XLF for confirmation of a negative mood in the financials.
LH – Inside day. Four days of consolidation could lead to a big move in either direction. Down would have room to run. Must be below 87.85 for reversal. Key breakdown level is 87.36 then 87.00.
RIG – breakdown or reversals below 50.80.