Stocks got smacked on Friday as a result of whole host of unfriendly news - China raising margin requirement, increased concerns over Greece’s financial condition, higher than expected CPI data, lower than expected revenues at American Express, and more. Those are just the highlights (so to speak)!
The down day left the SPY, QQQ, and DIA all under their 50 DMA. However, this is not the most concerning condition that has now been created in the charts. The down day clearly demarks the second consecutive move to new highs by the IWM in as many months that has not even been closely accompanied by any of the other indexes.
Divergences this glaring are often a sign of a tired, indecisive, or even bearish market. The bull market is not completely broken, but bullish traders had better know their trading rules that protect their capital!
If this was an article about baseball we’d be looking at 2 big errors by the bulls. I won’t call it two strikes, because as we well know, the market doesn’t always get three strikes before it’s thrown out!
Don’t worry, Mish will be back Monday and I’m sure you’ll be hearing more about this market divergence.
S&P 500 (SPY) After trying to clear resistance around 211 for the last few days, this failed with a gap lower and proceeded to sell off breaking the 10 and 50 DMA giving us an unconfirmed warning phase. 206.50 is now support to hold and 209 is the point to clear. Subscribers: Negative in all.
Russell 2000 (IWM) Failed the breakout to new highs with a gap lower but managed to hold support at 123.80. Next lower support is at 123.16 the 50 DMA.
Dow (DIA) Gapped under the 10 and 50 DMA for an unconfirmed warning phase and tried to hold at the 100 DMA. Still managed to close right at the 100 DMA after breaking it midday
Nasdaq (QQQ) Now in an unconfirmed warning phase after gapping lower on the open and not managing to reclaim the 50 at 106.80 or 10 DMA at 106.97
XLF (Financials) Unconfirmed warning phase after failing the 10 50 and 100 DMA’s. Now needs to hold at 24.00 and reclaim 24.30. Otherwise see a visit to the 200 DMA at 23.69.
KRE (Regional Banks) Could not hold up at the 6 month calendar range at 41.06, but found support in the meat of the price action from the last few weeks.
SMH (Semiconductors) Back to an unconfirmed warning phase after gapping lower on the open. Held support around the 100 DMA at 55.22.
IYT (Transportation) Still Dancing around the 200 DMA. Needs to clear 155.82 and hold.
IBB (Biotechnology) Held support at the 10 DMA (353.77).
XRT (Retail) Troubling to see this break the range between 100 and 102.50. Has some support around the 98 level but if that fails could see 96.58 the 100 DMA.
IYR (Real Estate) Doji day after holding up better than most. Needs to hold around todays lows or could see a visit to 75.87 the 200 DMA.
ITB (US Home Construction) Sold off sharply on the open and tried to rally back, yet could not clear back over S2.Closed right on the 50 DMA at 27.56.
GLD (Gold Trust) Back to an unconfirmed recovery phase after a nice gap higher on the open. Needs to first hold 115.45 and after that 114.95 the 50 DMA.
b Gave us an inside day sitting right on the 100 DMA at 19.56.
OIH (Oil Services) Looking rather trapped by Wednesday’s range. Needs to hold the 10 DMA at 36.55 and clear back over 38.
XLE (Energy) Looks very much the same as OIH! With 81 being the point to hold and 81.86 the point to clear.
XOP (Oil and Gas Exploration) Still needs to clear 58.40 and hold 53.19.
UNG (US NatGas Fund) Inside day after the large move yesterday.
TAN (Guggenheim Solar Energy) Sold off from the recent highs to find support at the 10 DMA (47.71)
TBT (Ultrashort Lehman 20+ Year Treasuries) TLT’s had a strong move up from the 50 DMA. Still looks range bound though until can clear 132.76 or fail 129.00
UUP (Dollar Bull) Sitting on the 50 DMA at 25.57
EEM (Emerging Markets) Found support at the 10 DMA
FXI (China Large Cap Fund) The slowdown in China's economy was apparent when looking at this instrument today closing down 4.6%.
EWY (South Korea) Took today to rest with a small correction
RSX (Russia) Sold off midday on fears of a potential downgrade.
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 using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly
***NEW: Market Tone: Short-term Negative 2, Intermediate-Term Positive 3, and Long-Term Positive 4, aggregate makes it a positive 5. Still in a trading range within a trading range but with a negative tone for short-term trades and a slightly bullish tone for longer term trades. NOTE: Market Tone is updated before the open each day and reported to you on twitter.
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:
AIG corrected back to key breakout level. Like if holds Fridays low and clears R1
Category 2: N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy an 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: (Opening range reversals are good on anything above S1)
JUNO like over 66 with risk to 62.22
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:
COST Sitting right on support at the 100 DMA. LIKE over Fridays high and R1 with risk to 143.17 area.
Phase Change:
MU Sitting nicely on support at the 10 DMA like over R1 with risk to PDL.
CVRR Inside day, Like over 21.58 with risk to under 20.70
HCP Cleared the 200 DMA nicely. Like on a move over 43.26 with risk to 42.38 area.
ILMN Inside day just under the 50 DMA. Like on a move over 192.48 with risk to PDL
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
GD like under Fridays lows with risk over the 200 DMA at 131.70
Category 6: N/A
