Prepared by Geoff Bysshe, President of MarketGauge, filling in for Mish until December 8th
Great News + No Action = Be Selective!
The media will focus on the record closes in the S&P 500 and the Dow, as the markets reaction to the biggest increase in payrolls since 2012, AND the largest increase in aggregate wages since 2006.
But the real story is that those record closes were achieved with a weak rise in price that was anything but an excited reaction to such strong economic data.
Furthermore, the QQQ didn’t even come close to yesterday’s high, let alone approach its recent highs. As for the IWM, I’ve stopped expecting much from it so it traded as expected – up better than the other 3 but still not significantly so.
One of the most powerful trading skills for a trader to develop is the ability to recognize a turning point in the market based on trading patterns that can be described as “good news met with bad action”. You can see a recent example of this in the IYT high on 11/28.
On 11/28 oil prices collapsed created a big gap up in IYT because lower fuel prices is good news for transportation to stocks, but the market sold the news, and IYT closed the day on the lows. That’s not good action for such good news. So it was no surprise that IYT proceeded to collapse the next day.
Yesterday’s general market action was not as bad as the IYT example, but it was not in line with the bullishness of the news. News of this magnitude should have produced the “smelling salts” effect I was wrote about here on Thursday.
I can’t say that I’m surprised about Friday, I even expressed concern that this type of apathetic reaction may happen, but I will admit the bull in me was so disappointed that I took profits in several positions I’ve held since mid October.
But Friday was not all bad. Some sectors did react quiet well. The most respectable moves came from the financials (XLF). Healthcare (XLV) and semiconductors (SMH) acted well too. Unfortunately, these have been the leading groups for months.
In conclusion, the most important news of Friday’s trading was that despite great news, the only part of the market that reacted was the strongest groups. And that’s very disappointing.
Friday made it very clear that this market needs to be treated as several different markets based on each market sector. Be very vigilant of what sector your stocks are in going forward. There is definitely an edge to be had by being in the right one!
Of course you’ll read more about the sectors below, but I’ve also made it the focus of this week’s Market Outlook video which you’ll find on our home page this weekend.
S&P 500 (SPY) Doji day but a new high close. Still consolidating. Subscribers:Positive pivots in all
Russell 2000 (IWM) Improved in condition but at resistance at 118.00
Dow (DIA) New high close
Nasdaq (QQQ) Inside day, more divergence from the other markets. A move lower under prior day's lows would be negative.
XLF (Financials) Liked the jobs report, closed on new highs with good leadership but very extended
KRE (Regional Banks) Gapped over the 10 DMA for an improvement in condition
SMH (Semiconductors) New high close continuing as a leader but now very extended
IYT (Transportation) Started strong but could not clear resistance at 165.75. A move below prior lows is very negative
IBB (Biotechnology) New high close and remains a leader.
XRT (Retail) Held 92 again but very disappointing performance on Friday. A break of 92 will not be good
IYR (Real Estate) Doji day on the 10 DMA held support around 76.10. Could surprise to the upside.
ITB (US Home Construction) Held yesterday’s low at 25.45 with a doji day. Bulls should watch this pull back closely
GLD (Gold Trust) Unconfirmed phase change back to bearish. But if you like to trade GLD its time to focus on it again.
GDX (Gold Miners) Gapped lower but found support at 18.65
USO (US Oil Fund) Yet another new low for the year.
OIH (Oil Services) sold off for a new 2014 low
XLE (Energy) Holding support at the 200 weekly moving average
XOP (Oil and Gas Exploration) Followed USO to the lows for yet another 2014 low close
UNG (US NatGas Fund) Strong reversal day off the lows
TAN (Guggenheim Solar Energy) Rallied into resistance from the gap lower on 12/1
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs Its muted reaction to the jobs data is even more remarkable that the the stocks (described in today's commentary). If that data couldn't push up rates, I don't know what will. There could be a big upside surprise coming here.
UUP (Dollar Bull) Gapped back to the highs for a new 2014 high close. Extended, but no markets get more extended than currencies.
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: N/A
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:
LEN So close to the bottom of key support at 45.45-45.20. confirm over 45.70 with risk to 45.20
FTR 2 days under pivots with an inside day sitting on major support, needs to clear 7.00 with risk to 6.80-swing risk
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)
OI A move over 26.59 clears 2 months of work with max risk at 25.80. Big volume on Friday could makes this range a key day.
MAC Consolidating at the highs, needs to clear 80.43 with max risk at 78.60
LMT Beautiful bull flag onto support with an inside day. Over 190.25 could explode higher. Use risk tight risk under 190.20 or swing risk under swing low area of 188.45.
BIDU Held support at the 50 DMA needs to confirm over 232.96 with risk under 228.60
JNJ Over 109.50 clears a month’s consolidation risk under 107.22
CIEN Over 17.00 clears 2 months’ worth of work, max risk at 16.25
CORN Key level at 26.60 to clear with risk to 25.80
Category 4: N/A
Phase Change:
FB Unconfirmed phase change to bullish, best over 76.76 with risk to PDL
Focus List: GREK, PAYX, YOKU, MRVL, UTX, SNDK
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
SINA Inside day needs to break 36.50 with risk to 37.17
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
