Do we regard the 3 day sell-off beginning Monday in the S&P 500 as short-lived considering the marginal 4th day red close on Thursday?
Trading conditions were choppy to say the least as the 4 indices split in terms of which ones are defending the 6 month January Calendar Range high and which ones are beneath. Both NASDAQ and the Russell 2000s are holding above while the S&P 500 and the Dow have failed it.
Current market conditions are harder to read than usual. After all,Biotechnology, Retail, Regional Banks (3 of my Economic Modern Family) remain inbullish phases while Semiconductors confirmed a warning phase. The one I thought might retreat has done so with conviction as Transportation traded below then above the 200 DMA after a gap lower, after the gap lower. In other words, although now oversold, our Transgender sibling never made it to the January 6 month highs and now sits just slightly above January 6 month lows.
So where do you look? The US Dollar and Interest Rates firmed. Soft Commodities weakened and gold and oil firmed -Yemen news had a lot to do with it-but I would argue the blow off bottom, reversal candle off the lows (noted here last week) came first.
As Friday rolls around, I am looking at the areas that outperformed. Cyber Security (HACK), Regional Banks (KRE) are the top two sectors. Everyone else, (besides oil, energy and the metals) is sitting back with the herd, hungry but hesitant to eat.
S&P 500 (SPY) confirmed warning phase. Let’s call 204-208 the new rangeSubscribers: Pivots Negative in all
Russell 2000 (IWM) 122 held and will like better over 123 otherwise could see 120.84
Dow (DIA) 173 support and 177.50 resistance
Nasdaq (QQQ) Unconfirmed warning phase. 104 support and 105.50 point to clear
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) Oversold now
IBB (Biotechnology) Tested and held the 50 DMA
XRT (Retail) 100 is key to clear or could see move down to the 50 DMA
IYR (Real Estate) 78.50 support
ITB (US Home Construction) look here over 27.50
GLD (Gold Trust) 115 now nearest support to hold
USO (US Oil Fund) Unconfirmed recovery phase with an improved slope on the 50 DMA
TAN (Guggenheim Solar Energy) If this gets near 40, that is a gift!
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs unocfirmed warning phase
UUP (Dollar Bull) 25.58 should hold
RSX (Russia) At this point, has to clear 17.40 and hold
BAL (Cotton) Like futures over 63.48
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:
FB 82.00 is max risk for a swing with a move over R1 necessary 83.81 or if clears pivots might set up for a miniswing
SWI If holds today’s low, like it over todays high and R1 50.79 for day to miniswing
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:
EA Held the 50 DMA so todays low max risk and has to clear 56.68 for a miniswing
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)
**CCL and BBRY report before the open
IR Slightly negative pivots but like over R1 if holds today’s low for a mini or hybrid
ECL Inside day positive pivots, relative good shape-candidate for a miniswing over R1 and the 10 DMA
Category 4: N/A
Phase Change:
AAPL Held the 50 DMA so like it over R1 but for more of a day to mini
FEYE Over R1 pushes it over the 50 DMA with risk to the low of the day if succeeds
WFM Possible slingshot low if clears R1 52.63 and holds 51.03
TEX If holds 26.14, could see a move over 26.80
KBH Keep this on the list if can clear today’s highs against the 100 DMA
DDD over 28.27 clears the 6 month calendar range low
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
DTV 86.00 max risk with 84.50 support
HOG 60.50 risk with 58.00 support
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
