If this year patterns in the same way it has patterned since it began, then we can assume that the 3 day sell-off beginning Monday in the S&P 500, placing it just below the 50 DMA but above the 100 DMA, should be as equally short-lived as the rallies have been.
If that is the case, then where might the smart money go? Anything interest rate sensitive would not be my first choice. After all, the FED has left itself ambiguous in that regard. Even though gold and oil based out and rallied, an ease in rates might have helped, but it seems that the real reason for both runs has more to do with the dollar weakening.
Soft commodities have not participated in the gold and oil rallies to date, so not thinking the self-fulfilling, careful what you wish for Ms. Yellen prophecy of rising inflation is coming any time soon.
We came into this week maxed out on the number of equity longs we were willing to hold plus long both the oil and gold ETFs as a hedge. That turned out well. To date, we are super light on the equity longs, which is great for shopping for new positions and how I prefer to buy anyway-on weakness, especially since I have harped on the sheep theory or exactly as mentioned before-short lived scatter (with some slaughter expected) and short-lived breakouts with a more “herd” mentality when rallies occur.
The Financial Sector (XLF) has been concerning all year, relaying danger even after the successful “stress” tests. However, Regional Banks (KRE) are a focus especially if they hold over 40.00. The other sectors that have led (Biotechnology, Semiconductors, and Retail) have nasty looking candles now and need time to settle down.
Homebuilders (ITB) had an inside day holding above the 10 DMA making that group a place to shop should the market stabilize.
In fact, more I think about it, until we see some reason to build up the portfolio again or until the sheepdogs come back, looks like a stock picker’s market.
S&P 500 (SPY) Unconfirmed warning phase with big volume on the sell-off, landing right on the 100 DMA Subscribers: Pivots Negative in all
Russell 2000 (IWM) Big volume exodus but, still my vote for the first index to buy if 122 holds up
Dow (DIA) Broke all moving averages but has a lot underneath as far as historical price support
Nasdaq (QQQ) That Déjà vu? In March 2014, the IWM broke hard while the others held on until April. Although a bit different this March, this did give me pause once it could not make new highs. Landed on the 50 DMA.
XLF (Financials) 23.75 support and back over 24.10 much better
KRE (Regional Banks) Outperformed and held the bullish phase-40.00 support to hold
SMH (Semiconductors) Unless it gets back over 55, could see 52.25 next
IYT (Transportation) The aberrant sheep was first to act out and now has the 200 DMA in its midst
IBB (Biotechnology) Textbook blow off rally last Friday to study
XRT (Retail) Only broke the 10 DMA so still ok if holds Wednesday’s lows-otherwise, trouble here too
ITB (US Home Construction) Best shape comparatively so look here over 27.90
GLD (Gold Trust) Might need to take a breath here near overhead resistance
USO (US Oil Fund) Cleared 17.00 which makes this pivotal now
XLE (Energy) Over 77.95 clears the 3/18 bar high and the 50 DMA
TAN (Guggenheim Solar Energy) If this gets near 40, that is a gift!
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs more vulnerable looking now but still over the 50 DMA.
UUP (Dollar Bull) The 50 DMA comes in at 25.23 but looking like a fresh buy now over 25.58
EWY (South Korea) Needs to get back over 58.00
RSX (Russia) At this point, has to clear 17.40 and hold
CORN (Corn) Confirmed phase change to recovery-interesting
BAL (Cotton) Wait for futures to clear the 200 DMA at 64.60
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: N/A
Category 3: N/A
Category 4: N/A
Phase Change:
TEX If holds 26.14, has positive pivots and could see a move over 26.80
KBH Inside day positive pivots good risk 14.97 and in the homebuilders group for a mini to swing
KORS 67.50 is all I would give this as risk if sets up
SFM Warning Phase but held up well with an inside day. Like over R1 for a hybrid swing-big volume here too
BAX Not amazing but held up better than the market with today’s low a good max risk for a new miniswing trade
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
DTV Only on an OR high failure
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
