Today was just what the bull market needed – consolidation in the leading indexes and strength in the broader market. While the Q’s struggled to move higher, the IWM climbed without any sign of a pull back. The IWM closed up a healthy 1% and near the high of the day while the DIA, SPY and QQQ closed marginally higher.
The strength in the IWM does not ensure that the up trend will continue, but it does create a situation where all the indexes could correct for a few days and still be on top of good support. I think it goes without saying that this market is overdue for a rest of more than one day at a time.
I always take notice when a market breaks a major level of support or resistance by just a few cents penny, so I need to mention here that the DIA took out its July high by only 3 cents before retreating to day. This will be more significant if it closes lower tomorrow.
One other pattern worth noting is the inside day in the QQQ. This could simply be the one day of rest this market has needed before another big up day or a sign of a short term top. Keep an eye on this pattern tomorrow.
S&P 500 (SPY) - Couldn't make any more upward progress today. Closed up on the day but at the low of the day. Looks susceptible to profit taking. I'm more inclined to buy individual stocks than this index until it consolidates or tests the 198.00-198.50 area. Tomorrow the 199.70 and 199 levels should be good support
Russell 2000 (IWM) - Big breakout day I've been waiting for. 117.40-.50 will likely be resistance.
Dow (DIA) - Took out the 2014 highs (finally) by 3 cents. Not convincing, if it trades lower tomorrow it actually sets up as a low risk short against the highs.
Nasdaq (QQQ) -Inside day that could really break nicely either way. But if you'd like to bet lower, go with DIA.
XLF (Financials) - Solid, uneventful day. Still waiting for a pull back to 23
KRE (Regional Banks) - Big resistance at 39.30 including the 200 DMA.
SMH (Semiconductors) - Inside day after a big engulfing and bearish key reversal day. Key level to hold is 50.80. If that breaks it could be a bearish sign for the market.
IYT (Transportation) - Has 5 days of consolidation. 152.40 is the number it needs to breakout of on the upside. If it slides under yesterday's low, look for major support at 149
IBB (Biotechnology) - Gapped up and ran. The 2014 highs are at 275.40. Look for support tomorrow in the area of 270 to 268.60.
XRT (Retail) - Traded with the market but a close above 89 is a major breakout (after moving up to far too fast however).
IYR (Real Estate) - Inside day on the 10 DMA, and sitting on a good support from 73.50-.30. I'll be look at this one closely tomorrow.
ITB (US Home Construction) - Bounced off the bottom of its 5 day range. 23.75 is the key low level to hold.
GLD (Gold) - Started the day higher and slid all day. I've had my eye on the 123-122 level for weeks.
XME (Metals and Mining) -Looks like it wants to go higher and the weekly picture is still explosive.
USO (US Oil Fund) - 5 days of consolidation. It's ready to move. I'll focus on the long side. If you look at weekly lows there is another trend line from the 2012 lows that comes in at 34. Based on last week's daily action it time to start looking at last week's 34.50 area as potentially a low risk trade to pick a major low.
XOP (Oil and Gas Exploration) - Not surprisingly, closed near low of the day but up for the day as it straddled the 50 DMA. Should hold above 76.60.
FCG (First Trust ISE Reserve NatGas) - Nice trend up day again but stopped by the 20.90 - 21.00 level which is the important level to break. Close over the 200 DMA, makes it an unconfirmed accumulation phase.
TAN (Guggenheim Solar Energy) - Broke out of the daily consolidation and looks good, but no clear pattern to trade.
TBT (Ultrashort Lehman 20+ Year Treasuries) - TLT - As mentioned here 117.90 - 118 is significant resistance. Look for support at 116.60.
UUP (Dollar Bull) - Another nice up day but 22 is probably going to be hard to break. I'll be interested when it pulls back to 21.80. The weekly base is very impressive.
EEM (Emerging Markets) -I might have paid up but I like the breakout, until it falls below 44.50.
IFN (India Fund Inc.) - Just as I said about FXI a couple days ago. It's consolidation is getting old. It needs to break 26 soon or lookout below. Keep an eye on it.
EWW (Mexico) - Inside day. Breakout would be interesting. Must hold 71.
FXI (China Large Cap Fund) - Stable consolidation day
CORN (Corn) - More consolidation.
JO (Coffee) Breakout! No longer stuck in the range of 34.46 to 36.80. Next big level is 38
* * * * * Picks * * * * *
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.
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:
IFN - Five days of consolidation at a key level of 26. Looking for a break of 26 and a stop under 25.80 or 25.65 for a swing trade.
EEM - ORR with 44.80 in your stop would be good.
HOT - Looking for breakout over 84.60 daily consolidation
IYR - Inside day on the 10 DMA, and sitting on a good support from 73.50-.30. Looking for breakout over 73.87 with swing stop below 73.27.
RHT - 5 days of consolidation near all-time high breakout from 2012. Max risk 60.85.
FTI - Unconfirmed bull phase. Prefer ORR against 61. Max risk 60.45
PANW - Looking for breakout over 86
SPWR - Looking for breakout over 38.25
FSLR - Must be over 71. Max risk 69.80
Category 2: (Pipeline) N/A
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 below 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)
JNJ - Two inside days on the 50 DMA. Max risk 102.67
ITB- Might consider if can risk under 23.75. Must be over 23.86
SODA - Like a trade with stop under 33.30.
Category 4: (Rip Tide)
Phase Change:
NBL - Unconfirmed accumulation phase. Prefer ORR with 70 in the stop.
IP - Solid support at 47. Max risk 46.75. Looking for ORR against 47.47
Shorts:
Category 5: (Titanic) Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
LVS - Max risk 68.70.
GE - Max risk 26.40
Category 6: (White Cap)
N/A
Best Best wishes for your trading,
Geoff Bysshe
President
MarketGauge
Filling in for...
Michele Schneider
