Prepared by Geoff Bysshe, President of MarketGauge, filling in for Mish until December 8th
Can We Trust The 10 DMA?
For the first time since Oct 17th (just 2 days from the October lows), the SPY closed under the 10 DMA. The QQQ and the DIA still have not, and the QQQ’s didn’t even penetrate it by much today. This simple method of following strong markets works great, and the longer a market travels without a close below (or above) that 10 DMA the more significant the day it crosses becomes.
On the bullish side the QQQ’s tapped it and didn’t close under and the SPY’s have a nice range today that straddles it. So tomorrow the bulls who want a swing trade can use today’s range as the trigger to be bullish with a stop under the today’s low. Or look for a opportunity to buy against the today’s low in the QQQ.
The major trend is still up and that is still my focus, but the risk of a quick sell off is elevated.
For example the QQQ, and AAPL in particular, demonstrated today what I meant in my previous comments when I said that “institutional traders can be even more schizophrenic with the stark reality of their year-end P&L numbers squarely in focus”. APPL plunged roughly 8% in about 15 minutes with no news to justify it. It quickly recovered half those losses but that still leaves a lump in many traders throats I’m sure.
S&P 500 (SPY) Straddling the 10 DMA, today’s range is key, I’m neutral until it trades over today’s high and then if the other markets are in gear I’ll get more bullish.
Russell 2000 (IWM) Very weak day puts it near the low end of an important range of 118.80 to 114.00 which is the key level to hold.
Dow (DIA) Straddling the 10 DMA. Same story as the SPY.
Nasdaq (QQQ) Strongest of the 4 still, but was the weakest today. A break of today’s lows breaks the 10 DMA too, and would make me very cautious.
XLF (Financials) Sitting on support of the 10DMA and in the middle a range.
KRE (Regional Banks) Another ugly day. Broke the 200 DMA and sits on the 50 DMA but it basically in a bearish phase now.
SMH (Semiconductors) Still a market leader, but also still too extended to get long here.
IYT (Transportation) Friday’s weak action on bullish news led to a very weak day today. Sitting at a key support area of 160.60 with the next big area of support quite a bit lower.
IBB (Biotechnology) Traded lower with the market today but has good support. Still a leader.
XRT (Retail) First time under the 10 DMA and nearby 92 should be good support. Keep an eye on it.
IYR (Real Estate) Held up very well until the end of the day. Still a leader and if
ITB (US Home Construction) Sitting on the 10 DMA but next support a full ATR lower.
GLD (Gold Trust) Despite Switzerland’s vote on Sunday against stockpiling gold, it had a very strong day to close back over the 50 DMA putting it into a Recovery Phase. Worth keeping a close eye on.
GDX (Gold Miners) Nice strong day but still in a Bearish Phase
USO (US Oil Fund) Big up day and still under PDH.
OIH (Oil Services) Down again.
XLE (Energy) Stabilized and sits on the 200 week MA.
XOP (Oil and Gas Exploration) Down again
UNG (US NatGas Fund) Big gap down, and under key support of 20.60 area
TAN (Guggenheim Solar Energy) Subscribers: Hit hard, now oversold and near support, but no reason to act here.
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs Bearish engulfing pattern and on a weak day in stocks. Maybe we’ve seen a top?
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:
APD three days under pivots, held the 10 DMA and the runaway gap, now needs to clear 145.00 with risk under 142.95
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)
LMT inside day near the highs needs to clear 192.58 and then ultimately 192.94 with risk to under 189.00
CRM slightly negative pivots, held the 50 DMA with an inside day now needs to clear 60.29 with risk under 59.00
CIEN held the 50 DMA at 16.11 now needs to breakout over 16.50 risk to under 16.10 for a day to mini
DUK like this best for an ORR against 80.17 with risk under PDL
Category 4:N/A
Phase Change:
BAX Confirmed the phase change to accumulation needs to hold 72.66 and clear 73.00 with risk to under 72.25
BSX confirmed a phase change to accumulation needs to hold 12.83 risk to 12.70 for day to mini
EQT confirmed a phase change to recovery with an inside day needs to clear 93.44 with risk to under 89.14 for a swing
Long Focus List: EQR, IGT, CHKP
Shorts: Focus List: GOOG, PRU, JBLU, MON
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
KORS failed the 50 DMA at73.82 now needs to break under 73.15 with risk to 74.25
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
