I promise you I am not trying to compete with the Secret Life of Walter Mitty written by James Thurber with my visions of horses and sheep or my 3 “tells” that “speak” to me concerning the market. I do find fascinating though, that the name Walter Mitty and the derivative word "Mittyesque" have entered the English language, denoting an ineffectual person who spends more time in heroic daydreams than paying attention to the real world.
Rather, I propose the antithesis. My musings are intended to provide you with imagery and humor to humanize the market while offering you valuable, pertinent and timely information about your investment decisions.
For starters, the market capped the end of over a yearlong phenomenon with the S&P 500finally closing red 4 days in a row with Tuesday’s action taking it to 5 days in a row. Yet, let’s invoke the final cycle of an active traders’ portfolios during every market correction:(From January 5ths daily) #5. After the correction wanes, the picks that have held up in a positive phase or condition, look to buy with tightest risk. Also look for strong reversal patterns. There are several reasons to keep that in mind for Wednesday.
1. The Russell 2000s weakened into an unconfirmed warning phase while the other 3 indices confirmed their warning phases. However, the IWM held the 100 and 200 Daily Moving Averages and with near term oversold conditions and accelerating volume, popped above that support level and back above daily chart support over 115.00 (the 50 DMA overhead must clear as well at 116.77 or could be the resistance to sell into).
2. The TLTs or 20+ Year Treasury Bonds could have a blow off top in the works. On Monday the rally was met with good volume. On Tuesday the volume was nearly 3 times the normal average with a gap higher. That means that we look for either an inside day on Wednesday with a red close or maybe even a more dramatic signal like a gap below Tuesday’s low and a possible island top. Regardless, eyes here definitely.
3. Oil. Looking at USO the United States Oil Fund, we have had 3 days of accelerating volume and declining prices with extreme oversold conditions. The pundits can take a bow on the price under $50.00 per barrel prediction, but we traders are circling the chart for signs of a bottom. I am a real fan of volume patterns but we also need to see some technical confirmation. Perhaps an island bottom or at the very least, a recapture of 19.70, last week (and year’s low).
In the past, I have referred to The Seven Year Itch, the play written by George Axelrod, who used Mittyesque qualities for his main character to contrast his ordinary life. During 2007-2008 the market declined 56% taking 1,981 days to recover, with the peak low tick in March 2009. Here we are 7 years and an amazing rally later.
Dr. Brubaker: “When something itches my dear sir, the natural tendency is to scratch.”
S&P 500 (SPY) Closed under 200 the major support of the 100 DMA and now 197.86 the December low is up for grabs unless this comes in or closes above 200.50. Then we might see a rally to the 50 DMA. Subscribers: Negative pivots in all
Dow (DIA) 172.38 the 100 DMA then, 169.36 the 200 DMA while a move over 175 should be some relief
Nasdaq (QQQ) Oversold on the daily and weekly timeframes. Seared beneath the 100 DMA and the December lows. Either this comes in over 100.50 for a relief rally or we could see 96.00
XLF (Financials) 23.68 the 100 DMA
SMH (Semiconductors) Now, succumbing to pressure, it is in an unconfirmed warning phase with support at 51.85
IYT (Transportation) As the first one to crack last week, now will be interested to see if this holds 155.60 and the December low especially since read that FedEx was upgraded
IBB (Biotechnology) 300-310 the range to watch for a break either way. It tested and held the 50 DMA
XRT (Retail) Still holding the 50 DMA for now
IYR (Real Estate) 78.00 pivotal. 79 good resistance
ITB (US Home Construction) 25.05 the 50 DMA which was tested and held making this one place to look for longs if market holds
GLD (Gold Trust) Impressive if it can last
GDX (Gold Miners) 20.00 now pivotal support
OIH (Oil Services) May be noteworthy that it held the December lows 33.54
XLE (Energy) Holding December lows
UUP (Dollar Bull) Runaway gap confirmed unless it breaks 24.00
SGG (Sugar) Subscribers: Big day so will keep an eye on it especially futures at 14.82
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
**NOTE: The focus on 2015 picks primarily
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:
IGT 16.82 good risk if clears 17.17-swing
PAY Like over R1 and a risk to S1 for a mini to swing
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)
WMT 86.24 is the 10 DMA which it closed above so a hold into tomorrow with risk to under S1 a good mini to swing trade
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:
EBAY Has to take out 55.80 and hold 54.79 the upward sloping 50 DMA level for a swing
Phase Change:
MRVL huge range day with now 14.29 support for an ORR best
OC Strong day. If holds 35.36 then could see a move over the 200 DMA for a swing
CYH Inside day with 51.07 the 50 DMA and over todays high good, over 54.47 even better
VZ Historical support at 45.00 and over 47.30 takes out the 10 DMA for a swing
GM 33.91 is the 200 DMA to hold and a good early move over 35.00 worth looking at for a swing trade
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
GEL 43.81 good resistance and a good candidate for an ORR.
DTV confirmed phase change to warning if cannot clear 86.05. Now, feel better about selling weakness. Can see 79 next big support for swing
NFLX Under 315.54 will make a new low
ABBV confirmed phase change to warning if cannot clear 65.90 and breaks 64.00 for day to mini
ACT Multi-year run and now in an unconfirmed phase change to warning. If this cannot clear 258, then could see a decline to 244 then 227.
CBS Unconfirmed phase change to warning. Oversold here but look for an OR high failure against 53.75 for day to mini
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
