The First Step of A Market Reversal Is In Place
Will The Second Step Take Place Tomorrow?
Today's commentary was written by Geoff Bysshe, co-founder of MarketGauge.
Friday was an unconvincing bounce off the 50 DMA’s for 3 of the 4 major stock indexes (SPY, DIA, IWM), and the market was just as unconvincingly bullish today.
Nonetheless, 3 of 4 stock indexes (SPY, QQQ, IWM) closed over Friday’s high which is a first step in a market holding key support and reversing. However, when the prior day’s close is the high of the day, and the subsequent rally is as small as today’s, this pattern it’s not very convincing.
Additionally, if we look at how the individual Economic Modern Family members participated, we find that the “rallies” came from the weaker members.
Nobody was bad, but the only two that had any semblance of a trend up day were the two that have been the weakest as of late, XRT and IBB.
So “reversal” is still an optimistic description for the market right now, but it is still siting nicely in a great location for the bulls to place low risk trades betting on the strength and reputation of the 50 DMA.
The second step in confirming that the market’s inclination is to bounce rather than drop from here is for it to trade over Monday’s highs (in the indexes and ETF’s that closed over Friday’s highs today).
With that in mind keep your eyes on today’s highs in the SPY, QQQ and IWM. It’s not a powerful looking inflection point, but it’s the important next step to any form of a rally starting from here.
S&P 500 (SPY) It was able to trade above the important 206 level but then just consolidated in its opening range. The next big number to clear on the upside is 207. Subscribers: Pivots all positive.
Russell 2000 (IWM) Followed through over Friday’s high but couldn’t break above the important 112 level. 110.50 should be good support.
Dow (DIA) Quiet consolidation day. Needs to hold Friday’s low.
Nasdaq (QQQ) Cleared and closed over the 105.70 level. Next big number to clear is 106.90. 105.50 should be good support.
XLF (Financials) Consolidated with HOD at expected resistance of 23.20. It needs to get back over 23.30 to demonstrate any hope of strength. Next big support is 22.75.
KRE (Regional Banks) LOD at 38.50 confirms that should be good support. Interesting over 39.40.
SMH (Semiconductors) Traded over 52 but couldn’t close there. 52 is pivotal and the 200 DMA. There isn’t any good support until 50.25! Needs to clear 53 before considering a long.
IYT (Transportation) Traded over the key resistance at 139, but consolidated with the market. This is one to watch for trades in either direction it breaks.
XRT (Retail) One of the bigger movers to the upside today, but it all came in the first half hour. Let’s see if it can hold up tomorrow. Today’s low area, 43, should be support now.
IYR (Real Estate) Continued its orderly breakout.
GLD (Gold Trust) Gapped down under the 10 DMA to the top of a support area, 120.50, and consolidated. Today’s high is now a pivotal level.
SLV (Silver) Gapped down under the 10 DMA and the initial support of 16.40. Next big support should be a 16, and 16.50 could be big resistance.
GDX (Gold Miners) Gapped down with GLD but it did not break last week’s low as GLD did. 23.30 is the next support.
USO (US Oil Fund) Moved lower, but held 10.60 support. 10 should be the next good support. Needs to get back over 11.05, to consider longs.
XOP (Oil and Gas Exploration) Moved under lasted week’s low and the 200 DMA, spent the day consolidating.
TAN (Guggenheim Solar Energy) Down again and through the 21.70 support. 21.50 was the low of the day and a significant chart point.
TLT (iShares 20+ Year Treasuries) Almost a double inside day. Close enough. With 2 days of tight consolidation after a big breakout over the 50 DMA, watch for a big move either way this week.
UUP (Dollar Bull) 4th consecutive up day after last week’s reversal. Stopped at big resistance level of 24.40. There is more resistance over 24.40, but if it can break 24.40 it may have put in a significant low last Wednesday.
RSX (Russia) Subscribers: After consolidating around 17, it broke below consolidation low. Found support at the 50 DMA 16.50. Needs to get through 17.20 to start heading higher. Look for support at 16.30.
CORN (Corn) Subscribers: Broke down from important support area of 21. Now in unconfirmed bearish phase. 20.50 may be support.
BAL (Cotton) Subscribers: Very quiet day, but gapped down below the 200 DMA and 41 level of support. Needs to break 43 to look good.
DBA (PwrShs DB Ag Fd) Subscribers: Still consolidating near the bottom of 9 day range. 21.28 is the point to clear.
DBC (DB Commodity Index) Subscribers: Broke down below important support at 14 and 200 DMA. Next support at 13.70 and 13.50 (50 DMA)
SGG (Sugar) Subscribers: Another consolidation day at the bottom of Thursday’s extraordinary range day (may have been the biggest range day in years). 35 is the next big support.
PHO (Water) Subscribers: Quiet consolidation day with HOD at the key resistance level of 22.80. Needs to hold 22.50 then next big support is 22. Needs to clear 23 to move higher.
***Market Tone: Short-term Neutral Intermediate-Term Positive 4 Long-Term Positive 9
NOTE: *All starred picks are from the automated list of picks (which now includes short picks!) denote that it has one or more of the 18 chart patterns we have used on the radar screen. For example, inside day, 2 days under floor trader pivots, phase change, brick wall or return to the 10 DMA, etc.
Longs
ACAD
ACAS**
ADBE
AEM
AET**
AGQ
AIV
AMZN
APA
AXLL**
BBD**
BDN
BID**
BUD
BXP
CB
CME
CNQ**
CNX
COG**
COH
COST
CRM
CTXS
CVX**
CX**
CZZ**
DTE**
EWZ**
FCX
GDX
GDXJ
GLPI**
HES
HUN**
INCY**
JNJ**
LULU
MUR**
NEM
NRF**
PBR**
PBR.A**
PCAR
QQQ
SBUX
SINA**
SLW
STLD**
TTM**
ULTA**
XRT
Shorts
AAPL
APC
BBBY
BHI
FSLR
GILD
HFC
LGF
LNG
LYB
MON
MPC
MYL
PBF
RLGY
TPX
TSO
UAL
VLO
VRX
WNR
