It seems safe to get back into the sheep conversation after recent activity. I titled the weekend commentary as Cast Sheep because that perfectly defined last Friday’s action (if you accept the premise of sheep in the first place.)
A Cast Sheep is one that has fallen onto its back and cannot get itself back up without help. So, if we press the analogy and use the current market action as sheep grazing, retreating, occasionally falling on its back, and in some cases getting slaughtered-BUT-after all is said and done, the surviving sheep come back to feast again, stands to reason the worst of the damage is done. For now.
Most notable is the inside day pattern in all 4 indices. If there is ever a reason to buy into the sheep theory-an inside day pattern makes the case. For starters, one would expect the sheep to tentatively return to the pasture. (New readers, an inside day is when the trading range of the day is inside the trading range of the day prior).
So, like a sheep caught in the headlights (were you expecting wolves?), if thetrading range reconciles on Tuesday to the upside, percentages (given the bull phases) are in favor of a continuation to the upside. Perhaps, not new highs, but at least back to a trading range.
On the other hand, if the inside day reconciles to the downside, assume the sheep either ran for cover and will come back again sooner rather than later or worse, they decided to cross the road after seeing headlamps and splat…
S&P 500 (SPY) Over 209.42 I like this a lot more. Otherwise, the 50 DMA is 206.15 and the 6 month January calendar range hid is 206.88 Subscribers: Positive Pivots in all
Russell 2000 (IWM) My vote for most likely to succeed. However, has to clear 122 and hold the 50 DMA 119.48 and the January Calendar Range high is 120.56.
Dow (DIA) A prettier inside day but an inside day nevertheless. Watch the range break
Nasdaq (QQQ) That 108 resistance was palpable and now the key are to clear. Otherwise, could see 105-106 next
XLF (Financials) Inside day with support at 24.02 resistance to clear 24.60
KRE (Regional Banks) Inside day. Tried 41.06 the January Calendar Range High but has to close above if good
SMH (Semiconductors) 56.00 support but needs some signs of life
IYT (Transportation) confirmed warning phase with an inside day
IBB (Biotechnology) Looks ok-more like a gentle step down than a top
XRT (Retail) Inside day but not impressed unless it clears 98.50 and sticks
IYR (Real Estate) Narrow range inside day sort of in the middle of nowhere
GLD (Gold Trust) Inside day after Friday’s gap lower-weak
GDX (Gold Miners) Remember my story about getting stopped out at 20.13 with a loss? Now, its trading under 18.00
USO (US Oil Fund) Held 18 so with all the noise, still in a range-yet volume remains light
UNG (US NatGas Fund) Good basing action support at 13.00
TAN (Guggenheim Solar Energy) Please remind me to get back in close to 40.00
TBT (Ultrashort Lehman 20+ Year Treasuries) Retreating from the 100 DMA
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:
BKD A fave pick should this hold today’s low and the 50 DMA and clear 37.10
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)
MNST Inside day with max risk 134.98 the 10 DMA and a move over 140 good for a swing
INSY Inside day-like risk to today’s low max with a move over 59.13 good for swing since it’s over the 80 month moving average
GM Cleared the 10 DMA and if holds today’s low, has a good uptrend to 40 or higher
ROST Inside day has to clear 105.75 and hold 103.28 the 10 DMA for a mini to swing
Category 4: N/A
Phase Change:
STT If holds today’s low, an inside day over the 200 DMA so would do a miniswing max
CCL Top pick with an inside day above the 50 DMA-would for a swing if confirms over 45.24 risk to today’s low
FAST Over 41.00 still like but only now for a miniswing or day
GE Inside day under the 200 DMA. Over 25.77 clears a lot with risk to around 25.70 to make it tight
NOTE: Watch JOY to see if turns to an island bottom-unlikely but you never know
SFM Has to clear 35.85 and then can risk to tight to the 50 DMA to see if holds for a day to mini
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
FB 80.02 max risk and has double tops so don’t mind watching for reversal to control risk
SINA 37.15 max risk and can still see lower, especially under 36.00
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
