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
Yesterday I highlighted the fact that the 3 day range was so tight that a break in either direction would lead to a test of the last week's range. That is exactly what happened on the downside. And in keeping with their respective positions of relative strength for the week, the 4 market watch charts acted as you'd expect. The weakest market, DIA, broke last Friday's low easily, and the strongest, IWM, did not even come close to its Friday low. The SPY broke its level by 3 ticks and the Q's matched it perfectly.
Ben Bernanke speaks from Jackson Hole Friday at 10 AM and the market is waiting anxiously to hear what he has to say. With all the focus on Mr. Bernanke over the last couple weeks it's hard to imagine Friday could be anything other than a "let down". I'm intentionally not suggesting it will be a "disappointment" because that would suggest that the market would sell off.
Market participants will be listening for clues about what the Fed will do next, and when it is likely to act. Ben is likely to say that he will do something, and it will happen when necessary. I think, that's what both the bulls and bears are expecting him to say (much more eloquently of course). So left with no surprises, which aren't expected anyway, the market will be left wondering why it waited so anxiously for two weeks.
Which way will the market go if Ben doesn't have a surprise up his sleeve? I think it's a coin toss. 3 of the 4 market watch charts are at important inflection points that could break nicely either way. The major trend is still up, but the correction is not done digesting the early August run up. Either way, next week is a better time than a Friday before a holiday weekend to try to take a position on market direction. So my analysis of individual market and stocks in this report is brief.
S&P 500 (SPY) Gapped below the 141 level I'd labeled as my number for turning more bearish, and slid down to take out last week's low by 3 ticks. Important numbers on the upside are the 141 area, 141. and 142.08 which is the 3-day high.
Russell 2000 (IWM) Still the best performer of this correction from the highs. It held the 80.80-.60 level I spoke about yesterday. If it breaks that then area around last week's low is 80.20-.11. The upside resistance levels are 81.25, 81.51 and 81.96.
Dow (DIA) Still the weakest index.It closed below last weeks low of 130.06. It would not be good for the bulls if the DIA closes the week below 130.06. If breaks lower look for support at the 50 DMA, 129.08. Below that the trendline from the June lows is at 128.75, and then a swing low at 127.51. Resistance comes in at 130.06, 130.40, 130.60 and a major level at 131.30-.60.
NASDAQ 100 (QQQ) The last two weeks have formed a very tight, well defined range from 67.60 to 68.88. This type of consolidation gives a breakdown a lot of power to fall. The clear support on the downside is around 66.00, and then all the way down at 65.30-.22 where it finds the 5 DMA and prior swing highs. For resistance look at 68.13, 68.50, and 68.67.
ETF's
The detailed analysis of important ETF's will resume in the next Evening Watch after the holiday weekend.
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 with 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.
As I said above, today is not a good day to look to begin a swing trade. The weekend risk is high, and the market has paused over the last couple weeks to wait for September. So trade carefully. I'll focus on day trades, and if they really run consider keeping them as swing trades.
EW Has held up beautifully. Pivots are only slightly negative. I prefer to enter over 101.50. 101.00 is the lowest I'd consider for an OR Reversal. Max risk 100.60.
DTV Still consolidating nicely. Pivots are negative so I'd rather look for an entry over the FTP at 52.40. Max risk 52.20
LNKD Held up very well and bounced off key level of 107. Pivots are negative so I'd only get long over at 107.80, but 108 is close and was a big resistance level intra-day so wait for 108. Max risk 106.80
PNC Has a wall of support at 61.60 and both it and KRE held up very well. Pivots are negative so longs should be over the FTP at 62, and even better over 62.32 which clears today's high and R1. Max risk 61.60.
WHR Inside day with flat pivots and a daily chart that is very tight. Watch out for big resistance at 75. Max risk 73.70
CERN Had a great day, but now I'd look for an OR reversal rather than chase it. FTP lines up nicely with Wed. high at 73.32
GOOG Inside day, slightly negative pivots. Looks good over 685.07. Today's high is 687.39 and prior day high is 689.
MON Inside day, wait for it to break today's high of 87.63. Max risk 86.84.
MPC Very strong breakout of daily range. Key support at 50.50 and FTP at 50.30 makes for an interesting area to look for a reversal. Breakouts on a strong day worth considering too. Max risk 49.15.
TGT Held up very well, even has positive pivots. 64.50-.56 has been major resistance so wait for that to break. Max risk 63.75.
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:
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
XOP This ETF is not in a bear phase but is struggling at the 200 DMA. If it breaks down the 50 DMA looks like a good target at 51. Look for OR reversals at R1, 52.60 or breakdowns below Friday's low of 51.92.
SWN Is a leader in XOP's weakness (see above). It's in a weak bearish phase. It recovered nicely, but still sits below its prior support at 30.80. Must be below 30.80 Max risk 31.20.
OXY Another Oil & Gas stock - it broke 50 DMA badly. I'd only look to sell reversals against FTP,84.80 and R1 85.38. Max risk 86.15.
ORLY Sitting on good support at 85.25 - 85.00, but closed on the lows after a significant breakdown. R1 at 85.63 lines up nicely with Wednesday low of 85.73 for revesals, and breakdowns below 85 look good. Max risk 86.
SNDK It was a break today, if we can short against R1 at 41.70 I like it. Max risk 42.00.
A Is either basing or breaking down from a bearish flag. Today was an almost another inside day which is impressive so max risk is 37.31. Pivots are negative, but I'd prefer to be short only under the key low of 36.90.
NFLX broke badly, if we can sell against FTP 61.34 or R1,62.50, I like it. Max risk 63.38.
Best wishes for your trading,
Geoff Bysshe