Prepared by Geoff Bysshe, President of MarketGauge, filling in for Mish until September 4th.
While I'm filling in for Mish you can follow my swing and daytrading in real-time in our trading room (instead of twitter) called "Daytrading with HotScans" here: https://marketgauge.com/?page_id=1232
I For the next two weeks I'll be filling in for Mish as she takes a much deserved break. So let me get one thing out in the open before you start hearing from me every day.
I don't hate this market rally.
I'm tired of hearing and reading that this is the "most hated rally ever". It's just not true. If this market was truly hated there would be more bearishness! Where are all the bears?
The truth is that this rally is one of the most envied rallies we've seen in a long time. And typical of human nature, jealousy is rarely admitted, and usually results in the pursuit of the object of envy.
So if you're wondering when this rally will truly end, don't expect to find it by relying on patterns based on low volume and rising prices. Of course there isn't any volume - there aren't any sellers! The market is full of jealous bulls afraid of the fact that the 2007 highs are now clearly in sight, or handily exceeded depending on the index you follow.
This bull market will end when all this envy ends. This will happen when too many traders and investors get what their jealous hearts desire - joyfully bullish!
That said. The SPY, QQQ, and DIA are all at the top!
The top I'm referring to is the one created earlier this year. It's unclear how long it will take for this important milestone to be truly tested, but patterns as significant as this top will not go unnoticed by the current market action.
As we approach this significant top during a seasonally light trading volume period, the bears are hiding, and the bulls are afraid to admit their market bias. However, based on the history of the VIX as a judge of how traders are feeling, the fact that the VIX at a 5-year low and getting close to one of our short-term warning levels is formidable warning that the few bulls this market has pushing it higher are a little too complacent. Additionally, the markets have moved far enough above their 10 and 20-day moving averages for me to raise a red flag indicating "too much - too fast".
What does all this mean?
An extended and complacent market will correct when there is a day that closes below the low of the prior day. Until then, don't hate this market, don't let jealousy get the best of you, and enjoy trading it from the long side with discipline.
I'll welcome the correction when it comes, and rue the day when too many jealous investors admit they were wrong. I suspect the correction will come first. It may be soon, but we have plenty of ways to see it coming (like the lower close I just shared with you), so let's not jump to any premature conclusions and allow the market to tip its hand.
Monday's have been weak in recent weeks so don't be surprised to see weakness and even a down day.
S&P 500 (SPY) 142.21 was the 2012 high. Friday it was broken, but there wasn't much fanfare - perhaps because the cash index for the S&P 500 didn't quite make it to its new 2012 highs. It was also a very narrow range day - only about half the range of a normal day. The Friday low is important, but S2 is also likely to be important support around 141.70.
Russell 2000 (IWM) Its key swing high was taken out by 2 cents (81.84), but could not close over it. After 3 market leading days, it's hard to expect anything more than a quality rest day. If this high is broken the key resistance levels are 82.50 and 83.00. If Friday's low is broken, look for support around 80.70.
Dow (DIA) 133.14 the 2012 high. Had an inside day with the low right at expected support at 132.16. Watch out for Thursday's high of 132.75. Key support areas are 132.00 and 131.30.
NASDAQ 100 (QQQ) A weekly close at the highest level November of 2000!
But don't get too giddy. 68.55 it the intraday 2012 high, and it didn't break it. This is likely to influence the market. If it breaks this high the bulls need to hold the market over it. A reversal after taking out this high would have traders looking to sell the "top". I look at a 3-period RSI, and with the last 2 days closing with an RSI reading at or over 99. I don't expect much upside here Monday.
ETFs:
GLD Will this have what it takes to get through 158?
SLV Keep your eyes open for a breakout of the 27.50 level.
XLF (Financials) A sleepy breakout of the 15.06 level. Need to look at it as healthy until it breaks 14.80.
IBB (Biotechnology) Maybe this sector needs a serious rest after leading the charge all year.
SMH (Semiconductors) Inside day. Over 33.90 will look for the 2012 high. Under 33.30 will look for 32.50.
XRT (Retail) Like to see 60.86 hold. If it holds up it will be one to watch going into fall.
IYT (Transportation) Confirmed phase change to bullish. Now, can buy dips more safely. The 94 area is resistance and the trendline from the 2012 highs. Look for support around 92.
IYR (Real Estate) Similar to biotech-led the charge, now dragging along for the ride, which means could be vulnerable on any correction. The key range is 65.20 to 64.15.
USO (US Oil Fund) Getting closer to target of 36.50 level. A dip down to the 35 would be worth considering.
OIH (Oil Services) Lack of follow through on a daily breakout on Fridaybut it held the key level of 41.20. Use this level as the bull/bear bias level
XLE (Energy) Big resistance at 72.77 - 73.00. Draw teh resistance lince from the July 2011 highs.
TBT (Ultrashort Lehman 20+ Year Treasuries) TLT's are sitting on their 200 DMA. Expect TBT to consolidtate.
Longs: 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.
Note: Anything that is on this list is a candidate for a swing trade (of course market condition is a factor). Use the max risk mentioned along with an opening range stop along wtih a fudge factor and time confirm. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly.
Category 2:
TWC - Pull back to the 10 DMA. Max risk 89.25.
Category 3:(Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy a opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry:
COF Nice condition 1. Strong last hour. 56.50 should be good support. Max risk 55.90.
ASML Closed over tight daily consolidation. Risk 57.50
DLR Worth following higherif over 77. Max risk 76.50
EQT Improved to condition 1. Now, 55.83 good risk.
EWW Nearly an inside day. Nice consolidation with 62.68 level to hold and 63.31 next place to clear
TSCO Strong day Friday Watch for OR reversal preferred above 93.35.
MOS Tight day with 60.00 as a good breakout and 59.00 good risk point
PPG Improved to condition 1. Nice breakout potential over 110.65 with risk under 110.
CRZO Nice breakout potential over 26.20. Max risk 25.40
WSM Confirmed phased change. OR reversals prefered over 37.20
Category 4: (Rip Tide) Oversold (2 or more days under FTP), Condition 4, Needs to clear R1, Risk previous day low unless noted differently, Target- Day to at least 3 ATRs from entry:
Phase Change:
LULU Strong phase change - Range expansion day. OR reversals candidate if risk includes 62.50.
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
CLF - Look short below 42.60. Max risk 43.24
ILMN Phase change. OR reversals below 41.40. Max risk 41.60
Best wishes for your trading.