If last Thursday’s railroad tracks on the charts of all indices were indeed thatconfirming sell signal, Friday provided confirmation with a lot less excitement when you compare the extreme volatility and ranges that preceded Friday’s action.
If one compares the market participants of last week to say spectators at the US Open Tennis Championship between Venus and Serena, one could seriously have suffered emotional whiplash. Therefore, Friday’s relatively (compared to 270 point moves up or down) calm action in the DIA, SPY and IWM were welcomed and maybe even somewhat anticlimactic.
NASDAQ, on the other hand, and abattoir in the same sentence comes to mind. Many of NASDAQs components such as Tesla, Twitter, Intel, plus certain tech names like Micron, made the relatively calm move lower in the Dow look milquetoast.
Pretty much everything though, did indeed close lower with the S&P 500losing nearly 3% from the week prior and over 5% from the highs posted September 18th. From January 2014, SPY remains up just below 3% nevertheless, for how much longer?
The Russell’s already broke the 2014 lows to make new ones last week. TheDow and SPY landed on the 200 DMA, while QQQs can at least claim even with the horrific action on Friday, that it’s holding August lows.
In truth, everything looks so dreadful coming into this week, a further meltdown is likely even with the oversold conditions. As cash our only position in 2 of our models, we are well situated to sell into a rally or, look for signs of a bottom.
Those signs of a bottom remain constant and have served us well through the years-a blow off bottom with double or more the average daily volume(see comments on indices below), followed by 1-3 days of green candles and accumulation of volume, an island bottom confirmed, or a line in the sand support level that the market consolidates in, with an eventual breakout on good volume over that consolidation.
“No more ??? and no more doubt
you fall into the wishing well
you ??? into someone's spell that keeps you running in and out ???
???” Lily Holbrook, Welcome to the Slaughterhouse
S&P 500 (SPY) Support at the 200 DMA with double the average volume in place. Not to get excited, we will nonetheless begin to look for some signs of a bottom Subscribers: Negative Pivots
Russell 2000 (IWM) This too had double the average daily volume. It’s also sitting on a key monthly moving average with 2 weeks left in October. So oversold, at this point, we will wait for a bounce
Dow (DIA) Broke the 200 DMA at the end of the day on Friday with nearly 3 times the average daily volume. Although this is now in an unconfirmed phase change to distribution, I would look her to see if we can start bottoming out around the 200 DMA
Nasdaq (QQQ) August lows 93.89 and also had double the average daily volume. Besides DIA, here is another place to start watching for signs of a bottom-til then equally oversold
XLF (Financials) 22.33 the 200 DMA
KRE (Regional Banks) I know there was call buying here on Friday and the candle is a classic inverted doji hammer-watch this
SMH (Semiconductors) RIP Semis-we do have about a 50% correction from the breakout in 2013 to the peak high in September worth noting
IYT (Transportation) On the 200 DMA
IBB (Biotechnology) 260 next level of support
IYR (Real Estate) outperforming but not giving me a warm. fuzzy
GLD 117.10 area is a good place to watch for a hold-still think this could try for 120 or so
OIH (Oil Services) 43.45 is a really good place for this to bottom out against-watching
TAN (Guggenheim Solar Energy) Subscribers: 34.85 now a possible double bottom-but we need a lot of evidence of that to stick
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs not even close to the 2012 highs
UUP (Dollar Bull) I would not bet against the dollar here
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:
ETR Inside day and on the 10 DMA. If Friday’s low holds, then we can look at R1 and Friday’s high to clear for a move to 81.00
Category 2: N/A
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)
JWN over 71.08 could be ready to run for a miniswing risk to under S1 since pivots are positive
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:
GS We had a good daytrade on Friday as this was upgraded. Now, if holds179.25 the 50 DMA, could see more upside if it can clear 183
Phase Change:
CL Inside day right on the 200 DMA. If can hold65.15 then see a move over65.86, target of 66.50 to higher possible
PM Crazy trading but when the dust settles, holding over converging moving averages so 83.90 is a great risk point
WAG Unconfirmed phase change to recovery-has to hold Friday low and could see 200 DMA next or 65.75
VNO confirmed phase change to warning and attempted the 50 DMA. 101.40 support now
LPX Outperformed and holding the weekly moving average so if Friday low holds, then we could see a move over R1 13.34
Shorts: NSC (ORR mainly) RHT RMD YELP
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
MCK Unconfirmed phase change to warning. Trying to choose picks for shorts with good risk and that have been in an uptrend for years that could reverse. Resistance 195.80 better to use the 50 DMA (104.06) if gaps lower
INFA Phase change back to unconfirmed bearish with resistance now at the FTP 33.25. Lots of downside if market cannot hold
SBUX Has to break S1 at 73.77 with risk to 74.75 the 200 DMA
ILMN If cannot clear over 158 now in an unconfirmed distribution phase and could still head south
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
