Great Uncle, Great Aunt, neither of the faces of the FED one chose to “see” after the FOMC announcement’s ephemeral or practical results, at least for the immediate aftermath, could dispel the Economic Modern Family’s malaise. As pointed out on Wednesday, all of the family members, from the Grand Poobah Russell 2000s to the lowly sibling Transportation (IYT), declined and deteriorated to negative phases and then confirmed on Thursday.
The question that has to be on most trader’s minds, as we have all been here before, is whether or not the market is testing the trading range lows as it ticks to near-term oversold or, is this the beginning of the old adage “Sell in May, go away”?
I despise trading off of hackneyed phrases and in 2014, I laughed at those who did since at the end of April a year ago, the market was in a decent bullish phase and the naysayers looked foolish.
But that was last year! Different story as we begin May now as all indices are entering Warning Phases with the Grand Poobah confirming one. The holdout could be NASDAQ, if it continues to hold around the 50 DMA, but it will take some real conviction now to get our Family on the mend.
I do see the potential for the rates to drop as the Long 20-Year Treasury Bond ETF held near March lows and potentially could be bottoming. After all, the FED intimated at a September rate hike, but did not confirm that possibility at all.
Thursday’s tremendous volume on the selloff in the Russell 2000s could yield a bounce. Without getting sucked into the prediction game, I will speculate that one of the 3 following scenarios is likely and what I will be mindful of. Let’s stick with Granddaddy (IWM) for consistency’s sake.
First, the IWM sells off just a bit more, maybe even another rush to the exits and then, goes back to rallying testing recent highs. Secondly, the IWMbounces meagerly from here, the bounce that provides a short opportunity and we see the May adage come to fruition.
Third and probably least likely, IWM consolidates at the low end of the 3 month trading range (or range within the range) and goes into summer doldrums early.
I will say that what keeps nagging me is the missing piece of the equation or the recent basing action in many “Commodities” such as oil, cotton, sugar, metals, etc. With below zero inflation and without any imminent rate hike, I can’t help but remind my readers and myself how easily control can unravel for the FEDand the market should anything unforeseeable become a reality.
S&P 500 (SPY) Unconfirmed warning phase which of course, has to confirmSubscribers: Negative Pivots in all
Russell 2000 (IWM) Tested the 6-month calendar range, March low and the 100 DMA. Also confirmed the warning phase.
Dow (DIA) 2 big volume days so best case scenario, blow out the longs and heads back up. Otherwise, see the 200 DMA next
Nasdaq (QQQ) Remained in the Bullish Phase and best hope to spark a rally on Friday
XLF (Financials) Not every day an instrument trades in range that covers 3 major moving averages. This one has done so for the last 10 days. Back to an unconfirmed warning phase
KRE (Regional Banks) I am stubbornly still friendly here. All the way down to 39.40 as point to hold
SMH (Semiconductors) Held the 100 DMA so not that beaten up yet
IYT (Transportation) Look here and it’s hard to stay positive.
IBB (Biotechnology) Oversold and into support-that could be a good sign if QQQs also hold
XRT (Retail) Granny ain’t havin it. On new 60 plus day lows though which means if it clears back over 97.50 or so, could be it for downside
IYR (Real Estate) Even more oversold and if rates drop-possible bounce candidate
GLD (Gold Trust) Last 5 trading days has had better than average volume. It took our money early this week so now we watch
GDX (Gold Miners) 20.00 near term support. 17.00 the big support and over 21.30 a game changer for real
USO (US Oil Fund) Looks like it has bottomed but now it’s a matter of risk for a new entry
XOP (Oil and Gas Exploration) With all the bad press lately, that should not stop us from looking at what looks like decent basing action
TAN (Guggenheim Solar Energy) Could get the correction to 45-46.00
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs might see more bounce at least to 130.00
UUP (Dollar Bull) Super Oversold
EWY (South Korea) Island top confirms
RSX (Russia) Over 19.91 takes out the 200 DMA and under 19.50 should correct
BAL (Cotton) Futures look good and even better over 68.00
SGG (Sugar) Futures held above the 50 DMA and for the first time since 2010 look like its bottoming
PHO (Water) Worth watching if closes over 25.55 for a long term swing long
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
***Market Tone: Short-term Negative 1, Intermediate-Term Positive 1, andLong-Term Positive 2, aggregate makes it a positive 2. Still in a trading range within a trading range but with a cautious tone, especially with short-term trades. NOTE: Market Tone is updated before the open each day and reported to you on twitter.
Category 1: N/A
Category 2:N/A
Category 3:N/A
Category 4: (Rip Tide) Oversold (2 or more days under FTP), Condition 4, Needs to clear R1, Risk previous day low unless noted differently, Target- Day to at least 3 ATRs from entry:
EA The risk is the 50 DMA at 57.34 should this clear back over first the pivots for ½ and then R1 for ½.
We have a focus list for possible daytrades but not much for more: KSS KRFT MYL *FLS JOY AMZN EWI
Phase Change:
JCP Reports May 14th Inside day and like over R1 8.50 risk to today’s lows
Reversal Trades: N/A
Shorts: We have no shorts now with good risks
Category 5: N/A
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
