Over the weekend, we saw friends for dinner. The wife is Asian and the major reason I forayed into the Chinese New Year analogies beginning with the focus on 2014’s Year of the Horse to 2015’s Year of the Sheep/Goat/Ram.
Naturally, the current state of the stock market came up in conversation. The question most of our friends ask us is prophetical in nature-“Is the market going to crash?" the major question of late.
I found myself describing the now into its 5th month trading range as a fenced in pasture, one that is capable of keeping sheep in and predators out. I even drew a large square for them illustrating how the top and bottom of the square represent the highs and lows thus far in 2015 and the sides, the months and price levels. The actual activity of course, continues to appear as sheep.
Sheep do well in one to 300 acre spaces. However, they should never be kept alone as they get lonely, bored and potentially destructive. Therefore, having a few sheep together keeps them happiest and healthiest. If we substitute sheep for our Economic Modern Family, again, like sheep, they have stayed pretty much together yet rotate fairly often where they graze.
Overall though, the Economic Modern Family has not only been the best source for keeping a macro view, but also for viewing them within the perimeter of an imaginary pasture (or a very real trading range), which in turn, has kept our portfolio from any real danger.
I have a 6 chart screen as one of my daily setups. The 6 charts represent theRussell 2000s (IWM), Retail (XRT), Regional Banks (KRE, Semiconductors (SMH), Biotechnology (IBB) and Transportation (IYT). How they rotate from one another yet ultimately stay within the boundaries of the range is why I will not give up on the sheep analogy just yet.
I will add, that once this now substantially enduring trading range breaks one way or another, the follow through should be equally substantial. But that’s for a future discussion.
Monday’s session made yours truly particularly happy since I have been rooting for Regional Banks all year. KRE returned over the 50 DMA and back to anunconfirmed bullish phase with an inside day (when the trading range is within the boundaries of the trading range from the day prior.)
As for the rest of the family, they all traded in line with the indices with the exception of Semiconductors, who so typically of recent sector rotation, did its job Friday and rested up on Monday.
Adding one more layer is the air show in the Dow at around 18,000. The market has absorbed the now more obvious increase in Interest Rates this year and continues to cruise at altitude.
Presently, I am looking for the sheep to stay safely inside their pasture and the aviators to keep the Dow plane at altitude. Until we know if the market will break current fences, stay calm but definitely not complacent.
S&P 500 (SPY) Confirmed the BULLISH phase with resistance at 212.48, support at 209. Subscribers: Positive Pivots in all
Russell 2000 (IWM) Over 123.44 much better. Under 121, and even if the other members hold, will make me way more cautious
Dow (DIA) Confirmed BULLISH phase. Over 181.54 better and under 179.58 back beneath the 50 DMA
Nasdaq (QQQ) 109 good nearby support, 107.55 the better support. It actually corrected back 50% from the 111 highs to the 107 lows-tomorrow could be pivotal and more decisive.
XLF (Financials) Big day with a return to the bullish phase and a reason to keep overall positive
KRE (Regional Banks) After the inside day, thinking a close over 41.50 should ignite it to new highs.
SMH (Semiconductors) As long as this holds around 56.00, friendly
IYT (Transportation) Confirmed the improved phase over the 200 DMA making 156.25 area key support.
IBB (Biotechnology) Would have preferred to see this close over the 50 DMA, but I do like that it closed over Friday’s high
XRT (Retail) Good confirm of a possible bottom if holds over 97.27
IYR (Real Estate) Couldn’t quite close over the 200 DMA but didn’t fall apart either with the increase in rates
ITB (US Home Construction) Unless this gets back over 26.62, looks a bit heavy
GLD (Gold Trust) Unclear chart pattern but phase remains bearish
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) Inside day. Still like this as a bottoming pattern
XOP (Oil and Gas Exploration) Down day but holding the fast moving average at 53.75
TAN (Guggenheim Solar Energy) 45.00 the 50 DMA
TBT (Ultrashort Lehman 20+ Year Treasuries) 47.54 2015 high in TBTs
UUP (Dollar Bull) Back over the 100 DMA and wondering if that’s if for the correction
IFN (India Fund Inc.) Might have bottomed out
EWI (Italy) Huge base and inverted head and shoulders bottoming formation
FXI (China Large Cap Fund) Asia rocking
EWY (South Korea) Island top confirms
RSX (Russia) Confirmed accumulation phase
BAL (Cotton) Futures look good and even better over 68.00
DBC (DB Commodity Index) 2 inside days
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 Positive 3, Intermediate-Term Positive 6, andLong-Term Positive 8, aggregate makes it a positive 17. Still in a trading range within a trading range and with a more positive tone. NOTE: Market Tone is updated before the open each day and reported to you on twitter.
Category 1: N/A
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:
NFLX Inside day. With 5 days under pivots has to clear R1 which lines up with today’s high. Risk to today’s low. If gaps over R1 can do a 5 minute or if clears R1 a 30 minute OR. Good for mini or swing depending upon setup
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)
AFL Unconfirmed phase change to bullish. If holds today’s low, like over todays high for swing maybe mini if sets up. Like on all OR timeframes
Category 4: N/A
Phase Change:
LMT Confirmed a brick wall bottom and the phase change to warning. Should clear 191.46 and hold 187 the 200 DMA for a swing. Like for a 30 minute OR or a ORR
Reversal Trades: (Glass or Brick Wall Bottom or Top):
KORS Reports May 27th Over 64.00 best, and has to hold around 62.00 now to stay a focus for mini to swing
ADSK Reports May 14th Brick Wall Bottom on the 200 DMA. Has to hold Thursday low 56.38 for swing and better if holds 57.75 level and today’s low for a shorter term trade to confirm phase change
HD Reports May 19th If today’s low holds, holds the 100 DMA. Like on a ORR best but wouldn’t rule out a quick entry over 110.57 R1 for a mini to hybrid swing
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
MON Inside day under the moving averages with a gap to fill at 114.97. So for now let’s say day to mini if cant clear 117
Category 6: White Cap-Having a 2-3 Day correction over the pivots. In a Negative Phase, Positive Pivots. Can sell an Opening Range High Failure if happens below R1 or previous day high whatever is higher and/or weakness if breaks S1 and prior day’s low
HOG Like under S1 with risk to 57.91 for a swing to give it time. 30 minute or 5 minute OR breakdown
Best Best wishes for your trading,
Michele Schneider
