From an older issue of the daily, here are the 4 signs of a top once again 1. Blow off rally with huge volume, 2. Slingshot patterns, 3. Island tops or, 4. Two or more tops made at resistance areas. Last Thursday night I wrote about 4 possible scenarios, one of which was that the Dow does not make it to the 2007 high after a valiant effort, then begins its descent. Friday, if you combine the 4 signs of a top with the 4 possible scenarios after a 10-day rally, the one that nags at me is the possible island top in the S&P 500.
If you look at the daily chart, the gap up from last Wednesday's high followed by the gap lower on Friday, leaves that possibility. However, like all fresh signals, it needs confirmation. Therefore, although the S&P 500 was the only index to have this possible formation, it is worth noting unless Monday proves to the contrary.
S&P 500 (SPY) The 2007 high was 157.52. Thursday's high was 156.80. A break and close under the fast moving average, 155.20 would not be a good sign. Plus, it needs to close the gap to Thursday's low 156.22 to negate that island top. Subs: Pivots Negative. If SPY can get through Friday's high, also clears R1.
Russell 2000 (IWM) 93.75 remains pivotal as this index held up well and as the 2013 leader, makes the performance in the SPY a bit less suspect. However, in 2011, the last time SPY made an island top, Russells held up for a day or two, then collapsed. Subs: Pivots Positive
Dow (DIA) No island here either and some underlying support at 143.65. Subs: I will use caution until we get some clarity on whether or not the market is resting or done for.
NASDAQ 100 (QQQ) 69.00 has to clear and 68.00 has to hold. This range is holding tight for now and a good confirmation on whether it's island top or just a breather in the rest of the market. Subs: Logic dictates that since this index did not move along with the others, should the market turn around, this would be the first place I would look to short or buy QID.
ETFs:
GLD Lots of congestion to clear over 154.70 for this to make a move higher. Subs: Got long but did not stay with it. May be basing but has to clear Friday's high.
XLF (Financials) 18.20 is first area of support to watch for a hold if this is going to continue a bull move. Subs: Using the 10 DMA now for our trailing stop in the swing based on a closing basis
IBB (Biotechnology) One sign of a potential rollover is a slingshot high. If this confirms, another big warning sign Subs: BMRN had a brick wall high if it confirms on Monday.
SMH (Semiconductors): Just couldn't get through 36.00 with a potential brick wall pattern. Then, we will be looking at the 50 DMA to uphold the bull phase. Subs: We took a no loss stop on the entry from 35.38, but if this holds and clears back through the 10 DMA will consider a reentry
XRT (Retail) Filled the gap from Thursday. Like to see how a second day of either correction or resumption turns out to help complete the puzzle.
IYT (Transportation) Failed to clear 112, but unless it breaks 109.85, was just a healthy digestion Subs: Keeping a no loss stop on the balance.
IYR (Real Estate) Held up with an inside day but has to clear 69.50 to negate the possible top on 03/06.
USO (US Oil Fund) Confirmed phase change to accumulation with doji hammer. Subs: Entered long on an opening range reversal with a stop under the 200 DMA. Could see 34.15
OIH (Oil Services)Peeking its head over an important moving average on a monthly basis and if holds could be a longer term bottom in place. Subs: 2 weeks left to see if this can close over the 80 monthly moving average 43.76.
XLE (Energy) Got through 2013 highs and closed on the week with an inside day.
TBT (Ultrashort Lehman 20+ Year Treasuries) 68.00 area has to hold as this continues its basing action. Subs: Like this over R1 and Friday high
XOP (Oil and Gas Exploration) As one of my favorite sectors this year, now trading at the top of a trendline going back to 2008.
XHB (Homebuilders) Still has to clear 30.00
UUP (Dollar Bull) Subs: Could be a brick wall top, but let's see what happens at the 200 DMA.
EWI (MSCI Italy Cap Index) Subs: Perhaps its basing, but has to clear this area or will look better as a short
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.
*NOTE: Did not find a lot of quality picks which makes sense considering where the overall market it. Keith's internal market indicators show a -2 in SPY. That means that it is now slightly negative in the short term.
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:
AIG Look for 38.85 area to hold and 39.15 to clear. 6 days negative pivots while holding the 10 DMA.
AIV Made new highs last Thursday with an inside day on Friday. Room to 34.00 for now if Friday's low holds.
OI Inside day. Look for it to clear R1 and hold 26.70 area. Like for swing if market holds
HLX 23.85 still pivotal. S1 (23.62) max risk.
Category 2: (Pipeline) N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy a 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)
PRU Made new intraday highs Friday. Would use max risk 59.88. Pushing up against the 80 monthly moving average
PX Friday's high and R1 line up. Max risk Friday's low and S1. Like for swing if holds
SPLK Inside day. R1 and Friday's high line up, and should clear. Max risk 38.60.
APC Again, new highs. Look for a reversal.
Category 4: (Rip Tide) N/A
Phase Change: DE As long as this holds 91.70, I would continue to look for a buy opportunity against Friday's lows. X has a 2-day glass bottom pattern if holds 19.55. Over Friday's high could see that move to the 200 DMA I waited for last week. RAX Slingshot low and on the 23 monthly moving average 51.73 with Friday's low 49.18 closing at 51.28, If clears Friday high would try it again as it is oversold.
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
SPG Still interested in this. Look for a short under Friday's low and look for 160.00 max risk
DLR Big selloff on Friday so an opening range high failure against 68.00 area is better.
LULU Big move Friday but overall, see this as a short and will watch for a good setup
WFM I just like this as a short in general and after a couple of days up, closed on the 10 DMA Friday. Not oversold so not adverse to selling weakness.
MHP Inside day. Short under Friday's low and the 200 DMA.
JWN Look for S1 to break and max risk is the 200 DMA
TWC If this cannot get through 92.51 the 50 DMA and rolls over, good place to look at for a short under S1
Bye for Now!
