Following inside day patterns in all 4 indices, they all reconciled to the downside, with certain instruments going s-p-la-t!
We have unconfirmed warning phases again in both the S&P 500 and the Dow. The Russell 2000s or small caps held up the best, holding just under the January 6-month high 120.56 and above the 50 DMA. Although NASDAQ had the largest percentage drop, it remains the furthest from its 50 DMA. Concerning the SPY and DIA, they will require a second day closing under the 50 DMA to confirm those warning phases.
At the risk of sounding like J.K Simmons during his acceptance speech after he won the Oscar for Best Supporting Actor in “Whiplash”, I really do call my mother every day. Monday night, her first words to me after she saw the daily email were, “What? You back to sheep again?”
Speaking of, the question on my mind, as I am sure you have anticipated would be, is when is it safe for our flock to come back to pasture? By the way, has anyone noticed the titles of the dailies are often almost an eerily theme the following trading day? For example, Sheep Will Flee In Random Directions certainly describes Tuesday’s action.
So what can we look for now? Besides a second close under the 50 DMAs in DIA and SPY (which would not be a case for risk on), we prefer to see both recapture their 50 DMAs and if that transpires, then we will look for strength in IWM and NASDAQ as well.
Interestingly, there are several stocks that performed well in the face of Tuesday’s decline. A good rule of thumb-sort of Darwinesque one might say-is to find the instruments that outperformed, or the Sheep that exemplify the survival of the fittest, and keep your focus there.
S&P 500 (SPY) We have added the 100 DMA which comes in at 204.10 to the charts. Resistance now is at 206.10 Subscribers: Negative Pivots in all
Russell 2000 (IWM) The 50 DMA 119.48 and the January Calendar Range high is 120.56. Those are my swing points
Dow (DIA) 175.90 is the 100 DMA and 177.80 the 50 DMA
Nasdaq (QQQ) 104.50 the 50 DMA and 106.25 the point to clear
XLF (Financials) Broke support and the one that has made me wary all year seeing as it never took out the highs of January 2nd-the black sheep
KRE (Regional Banks) 39.16 is where 3 moving averages line up and 40.40 a good point to clear
SMH (Semiconductors) 55.04 the 50 DMA to hold
IYT (Transportation) 155 could be next stop unless this makes a surprising run over 160
IBB (Biotechnology) 340 now pivotal
XRT (Retail) The topping formation I wrote about last week-now we want to see support at 96.11
IYR (Real Estate) Another narrow range day sort of in the middle of nowhere
GLD (Gold Trust) 111 some support
GDX (Gold Miners) Oversold and close to the 2014 low 16.45
USO (US Oil Fund) The light volume never would have gotten us long, and today we saw why-broke 18.00 after nearly 6 weeks closing above it
TAN (Guggenheim Solar Energy) Please remind me to get back in close to 40.00
TBT (Ultrashort Lehman 20+ Year Treasuries) After Retreating from the 100 DMA, the TLTs gapped over its 100 DMA
UUP (Dollar Bull) could be extended -which actually, would be received as a relief if comes off a bit now
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:
MNST 135 is the 10 DMA and probably the best choice of a long if clears the pivots and the market stops falling
ROST 103.95 max risk and over today’s high still in play for a miniswing
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)
BKD Over 37.23 better but now has to hold 36.24
KSS Day to mini only if holds 73.00 and clears 74.00
Category 4: N/A
Phase Change:
CCL Held 44.00 marginally so now, has to clear today’s high and the 50 DMA with volume
NOTE: Watch JOY to see if turns to an island bottom-unlikely but you never know
KORS another island bottom possibility if gaps over 65.07 and stays above
ILMN If holds 189.67 and clears 195.25 it clears the 10 DMA and the 50 DMA for a swing
Shorts: Focus List HOG TWC (on an ORR preferably) IBM LRCX UA
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
BBBY If cannot clear 74.72 has some support at 73.13 but under that, can see 71.75 or lower
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
