As most experts will tell you, a family that plays together stays together. OurEconomic Modern Family that has been basically playing together, when we switch the word “playing” to “trading”, can connect the dots, which in turn helps clarify the often confusing price action of the overall market thus far this year.
I’ve repeatedly written that my best clues have come from watching the “play” among Retail, Semiconductors, Biotechnology, Regional Banks andTransportation, all under the watchful guise of the Granddaddy Russell 2000s.
That’s not to say that NASDAQ or other sectors/groups and individualstocks/commodities haven’t caught our attention-on the contrary. The distinction here is that the diversion and rotation nearly on a day to day basis seems so much easier to grasp when focused mainly on the above 6 instruments.
For example, when Semiconductors had the big drop near the end of March,Retail barely budged from its highs. At the same time, Biotechnology tested and began rising off the 50 Daily Moving average while Transportationcontinued to disintegrate breaking its 200 DMA. The Russell’s simultaneously, held to a tight range near their 2015 highs.
Hence, I began to notice that not only is the market in a stubborn trading range (all the herd of sheep references), but also that the siblings (sectors) if you will, seem to take turns leading and lagging Overall, that dosey-doe has kept the range or family in check.
Interpretation-we traded cautiously as we headed into April, yet optimistically anticipating that the weaker family members could recover from their corrections. Fast forward to the middle to end of April, all recovered off their lows-optimism paid off.
As we come to the finish of April, the Russell’s recently made new 2015 highs and are now consolidating. That keeps optimism alive, but for a full on Bullish bias we must wait until the aforementioned sectors bust out of their current ranges.
So, before we fully commit to the long side, I am watching to see if any of those groups can catch fire. Conversely, if the Russell 2000s break down under the 50 DMA, we would expect a deeper correction and adjust our trading accordingly.
I do like that the Dow closed out last week above 18,000, cruising at altitude so to speak. Yet I suggest, as flight attendants do “you keep your seat belt fastened throughout the flight, as we may experience turbulence…Now, sit back, relax, and enjoy the flight.”
S&P 500 (SPY) To gain altitude, this has to now clear 212.24. Support at 209.00 Subscribers: Positive Pivots in all except IWM
Russell 2000 (IWM) Inside day. Grandpa is sleeping so we hope he wakes up to take out the April 15th highs
Dow (DIA) Inside day. 181.67 a huge point to clear with 178 key support to hold
Nasdaq (QQQ) New all-time high close which shouldn’t hurt
XLF (Financials) Closed right under the 50 DMA giving us an unconfirmed phase change back to warning. Fins have been a reason why the market is not currently trading much higher.
KRE (Regional Banks) Been above the 50 DMA since February 6th. Like to see this continue to do so
SMH (Semiconductors) Naughty sibling on Friday, breaking back under the 50 DMA with 55.32 the next moving average support
IYT (Transportation) Inside day as expected after its 3-day run last week away from the 200 DMA-big key to keeping the family intact
IBB (Biotechnology) Inside day with resistance at last week’s high fairly significant
XRT (Retail) For those new to my Economic Modern Family, this is Grandma. She seems to be waiting for more retail earnings before deciding to shop or save.
IYR (Real Estate) Might as well watch the interest rates as this is weak yet holding above the inclining 200 DMA
ITB (US Home Construction) Inside day on the 100 DMA
GLD (Gold Trust) Disappointing action last Friday-question is 110-double bottom or the neckline breakdown if fails of a huge head and shoulders top-will now avoid until we know more
USO (US Oil Fund) Consolidating just over the 100 DMA. Needs to hold 19.15 and clear 20.29
TAN (Guggenheim Solar Energy) Perhaps we can get a correction to around 45.00
TBT (Ultrashort Lehman 20+ Year Treasuries) The Interest Rates should remain choppy with a good possibility of a rate rise, but with no real commitment on that as yet
UUP (Dollar Bull) Confirmed warning phase
EEM (Emerging Markets) Closed on new 2015 high
EWP (Spain) Resistance at the key monthly moving average 36.32
RSX (Russia) Gave this to the twitter stream as a buy at 17.40. Now, we have taken 2 profit targets and holding the tail
BAL (Cotton) Futures look good and even better over 68.00
DBC (DB Commodity Index) Subscribers: Inside day
SGG (Sugar) Futures close right on the 50 DMA and fir the first time since 2010 look like its bottoming
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
***Market Tone: Short-term Positive 2, Intermediate-Term Positive 3, andLong-Term Positive 6, aggregate makes it a positive 11. Still in a trading range within a trading range but with a cautiously positive tone. NOTE: Market Tone is updated before the open each day and reported to you on twitter.
Category 1: N/A
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)
RAI Got the ORR on Friday against 76 with an inside day and negative pivots making R1 necessary to clear
ADSK Reports May 14th Inside day with neutral pivots and if clears 63.00 can use 61.70 as a risk point
RGR Reports May 4th Inside day with over a move over Friday’s high a break to new 2015 highs
MS Inside day and over 37.56 clears recent highs like risk to 37.00 to keep it tight
VZ Reports May 21st Closed right at 50.00 which means a good open is compelling with a risk to 49.00 or about 2 ATRs
Category 4: N/A
Phase Change:
IBM Inside day under the 200 DMA. But looks good over 171.91 and then risk to the lows of that day to clears the 200 DMA
ONVO Reported already and could see a bottom here if hold over the 50 DMA 4.90
YOKU Reports May 21st Over the 10, 50 and 100 DMAs so good support after basing action. Risk 16.25
BBRY Reported Over the 200 with an inside day. Like over 10.46 risk 10.14
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
DISH Reports May 7th Under S1 only
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
