aAs the Phase turns or as I have written earlier this week, once the cycles begin the points of deterioration, in this case, simple physics-things in motion stay in motion-we get, well, what we saw during Tuesday’s session.
With NASDAQ marginally holding the 50 DMA and the bullish phase, one can assume that further deterioration will indeed impact the QQQs. Therefore, it’s those high momentum stocks, some of which have already had substantial declines that should erode further.
Therefore, we can also assume that the SPY and DIA will break the 200 DMA, IWM will match or take out May 2014 lows and then at some point, with majorly oversold conditions, an ensuing short covering rally will follow.
This year, the contrarian trader has flourished. Sell when instruments look strong, buy when instruments look horrid. I would maintain a mainly cash position at this time, with a delta neutral bias (under committed yet small net long and short positions and wait for the dust to settle.)
Looking out and when the volatility comes back in, I still see the future mega trends for the bulls inRegional Banks, China and Solar. But of course, timing is everything!
S&P 500 (SPY) It is interesting that the May lows also match the 200 DMA. Law of attraction.Subscribers: Negative Pivots in all except IWM
Russell 2000 (IWM) Under 110, 108 is the May low area. Over 113 perhaps some new life
Dow (DIA) As with SPY, May lows match the 200 DMA only it’s there already. 160 are the April lows although this does also have oversold conditions
Nasdaq (QQQ) 94.00 is the 50 DMA. If that holds and this turns up on good volume, I will get more positive. For now, that line in the sand looks precarious.
XLF (Financials) May lows are under the 200 DMA-therefore, looking at 21.50 although oversold here as well
KRE (Regional Banks) Subscribers: Make a note, by the time this reaches May lows, if it does, 37.00 area should be a good buy point.
SMH (Semiconductors) Unconfirmed warning phase
IYT (Transportation) 142.90 is the recent June low
IBB (Biotechnology) July low 246 and back in an unconfirmed warning phase
XRT (Retail) Should this hold current levels and turn back over the 200 DMA, that would make this a place to go for longs when the market calms down
ITB (US Home Construction) This index is trading around the end of 2013 levels
GLD Converging moving averages and bias still negative at this point
XOP (Oil and Gas Exploration) 72.20 is real close and worth watching for support.
TAN (Guggenheim Solar Energy) Subscribers: As tempting as this is after the strong performance, giving this the week to prove or not it can close over the 200 weekly moving average or 39.22
TBT (Ultrashort Lehman 20+ Year Treasuries) The more I read about the low Fed Fund rate as unsustainable, it’s here at the TLTs we have to look for that sign-still over the 50 DMA
UUP (Dollar Bull) Strong which means the equities that are impacted by a stronger dollar are well worth watching
FXI (China Large Cap Fund) Subscribers: 40.10 now the key support
CORN (Corn) Subscribers: If this is bottoming, then we can wait to see if it clears 26.60
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)N/A
Category 2: (Pipeline) N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means caneither 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: (Opening range reversals are good on anything above S1)
*NOTE: I just want to remind you that the losses are so nominal and our exposure even smaller, that once the market gets back on steady footing, the system will kick in-has worked like that for years. Also, we are well outperforming market from the beginning of 2014 with a drawdown that is basically scantily down compared to the SPY.
*XRX Negative pivots but still in good shape if can clear 13.21 and hold 12.95
*SCCO We have ½ postion now but what would increase that for us is a move over 33.50 at this point
*COST Inside day with 118.41 is R1 and 118.55 last week’s high to clear with the risk now 117 for a swing
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:
*AAPL 93.60 is the 50 DMA with R1 and today’s high lined up at 95.76-here because it has held up well
Phase Change:
WMT Reports August 14th. A Mish special-sitting on a major trendline with a possible slingshot super oversold-over 73.65 good risk to today’s low 72.77, for a miniswing to hybrid swing trade
*EHTH Had a confirmed brick wall bottom on the 80 monthly at 20.37-like better over 22 with a risk to 20.11 with the ATR 2.25
*TXT Slingshot low on the 200 DMA with today’s low a good risk. Pivots positive so can watch for an ORR or breakout over the 10 DMA 37.00
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
BBY Reports August 26th. Unconfirmed warning phase and god risk to R1 29.74
RTN 92.92 the risk if it breaks S1
AMZN Inside day with risk 316.18 and under 310.08 is S1 for a move down to 300 or lower
DVA Unconfirmed warning phase inside day so has to break 71 and not clear 72.03
NFLX S1 419.37 with risk now 427
PSX Inside day under the 50 DMA so risk is 82.04 clear and S1 to break is 80.51
Category 6: White Cap-N/A
