Market’s got game, I’ll give it that! Bouncing back like a kid playing basketball donning a new pair of Air Jordan’s, the Dow was down early Tuesday, then slam dunked a layup scoring over 240 points, mocking the 50 DMA. Yet, the Dow wound up benched with a technical foul after failing the 50 DMA.
Same game for SPY while NASDAQ, tested, held then failed its 50 DMA for an unconfirmed warning phase. My eyes were focused on the small caps IWM. Both its 50 and 200 DMAs are well lined up making this compelling as the leading indicator for now along with oil, the Russian ETF and interest rates.
By the end of Tuesday’s session, sadly, all indices failed. The SPY and DIAconfirmed the warning phases, IWM confirmed the bear phase.
To repeat from Monday night’s daily, typically, the next 3 weeks are among the most profitable for the year. OPEC has been higher 80% of the time during options expiration, which happens this week. Since 1980, the SPY has been higher in December 82% of the time when the market has been in a bullish phase. Losses are generally less than one percent. The biggest drawdown was in 1986 at 2.8%. Looks like 2014 will give that drawdown statistic a run for its money.
Oil had a green close with yet another day of better than average volume. That means we need some level of confirmation before we say with confidence that a bottom could very well be in place.
The Russian ETF (RSX) has even more potential for a blow off type bottom. That too needs to confirm and will add sparkle if can clear and close above 15.00.
Interest rates continue to present as a flight to safety with the FED announcement on their December meeting coming up on Wednesday. The Wall Street Journal tweeted 5 important clues to watch for concerning future policy:
1. The Fed to drop from the statement its pledge to hold short-term rates near zero for “a considerable time.”
2. News of strong job growth to support their overall optimism on the US economy.
3. The slide in oil prices perceived as a boost to the consumer driven economy
4. A decline in market-based inflation expectations (caveat on the potential risks to financial stability).
5. The potential for recession in the Eurozone that will behoove the ECB to keep rates low and our dollar strong
To keep it simple, watch the reaction to the rates post Fed announcementand more importantly, the follow through or lack thereof afterwards. Keep spying oil, the small caps (especially the moving averages) and the Russian market.
Risk factors have to prevail on all trading decisions. Finally, understand that a good pair of sneakers like Air Jordan’s can give you a false sense of possessing Michael Jordan-like skills. Clearly, reality comes back to haunt you!
S&P 500 (SPY) Inverted hammer doji-and that’s where this week began-let’s see where it reconciles Subscribers: Negative pivots in all
Russell 2000 (IWM) That’s 2 inverted hammer dojis-the war continues between the bulls and the bears
Dow (DIA) Yet another inverted hammer doji-see Sunday’s eve watch for details
Nasdaq (QQQ) Filled the runaway gap-usually that means the end of a rally for real-not to mention the warning phase
XLF (Financials) Hammer doji inverted under the 50 DMA
KRE (Regional Banks) Closed green but still needs to clear 39.32
SMH (Semiconductors) Definitely faring better than the others and far from the 50 DMA. You guessed it-an inverted hammer doji
IYT (Transportation) On the 50 DMA
IBB (Biotechnology) Nearing the 50 DMA
IYR (Real Estate) Near the 50 DMA and retraced to a trendline breakout that goes back to October-if holds better
ITB (US Home Construction) 24.00 key
USO (US Oil Fund) To make this more than a one day bounce, either has to have a green inside day or take out and hold over 21.73
TBT (Ultrashort Lehman 20+ Year Treasuries) TBTs inverted hammer doji on new lows-worth watching
CORN (Corn) Subscribers: Like to see a dip to 26.75 to buy
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:
JAH if holds 45.18, and clears R1 46.03 looks good for a mini to swing
O If holds 46.08 then like over 46.87 then 47.00 looks real good-swing
Category 2: (Pipeline) Positive Phase, Condition 2-3, 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:
HCA If clears 72.69 have a good day to miniswing trade especially if over R1
AVGO Over 99.50 clears the 10 DMA making this a good one to go to if the market firms especially over the 10, pivots and R1 for a miniswing
Category 3:N/A
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:
MU Held the 50 DMA and near term oversold. If holds todays low, then like over R1 33.76 then todays high for a swing
Phase Change:
CIEN If holds 17.20 looks good over R1 18.39
CYH Will probably use a stop under S2 tomorrow and if clears 52.00 looks good
GERN Inside day so worth watching over 3.14 and today’s high
SFM Over 31.42 takes out channel and the 200 DMA for a swing
DDD A wide range and good volume reversal from new lows. If holds S1 28.28 and confirms the slingshot will try again for a new swing
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
UNP Today’s high and the 50 DMA good resistance if breaks 110.89 for day to miniswing
CBS Phase change confirmed to bearish with good resistance at 53.60. Mini to swing
GILD Resistance 103.48 the 10 DMA then under 100.00 could see much lower prices for mini to swing
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
