In the ongoing miniseries, The US Stock Market and He’s Not Heavy, He’s My Brethren Market, after wild swings, huge volume patterns, reversal candles on top of reversal candles, the week ended promising for the bulls in the Dow, QQQs, marginal in SPY and not nearly as promising as one would hope in thesmall caps.
As we headed into last Friday, we wondered whether or not the protagonist (IWM) would continue to lead the charge for more upside, while the antagonist (QQQs), would roll over and die under the 200 DMA.
But that would be too easy, my devoted readers! Like a, Simon Brett novel, intricate plot twists prevailed! The QQQs cleared the 200 DMA for an unconfirmed improved phase change to warning. The Dow, gapped higherleaving a potential island bottom-needs a second day confirmation. The S&P 500 held its own, but could not get close enough to its 200 DMA. And our hero, the IWM, took a rest or maybe worse, returned as the herald of possibly a much nastier outcome as this week begins.
My eyes will primarily focus on the indices, particularly if the SPY or DIA break Friday’s lows or IWM continues to show weakness. Conversely, we will watch to see if the DIA looks like it will confirm the island bottom or if the QQQs endure.
Some of the sectors and groups also merit close eyes. The Financial sector (XLF) tested but did not close above the 200 DMA, yet Semiconductors andTransportation did. Biotechnology closed just shy of the 50 DMA. Retailremains a weak link. The rest of the sectors are in Distribution or BearishPhases-certainly have yet to offer reasons to be cheerful.
Basically, we enter the third week of October thinking that this rally will be short-lived and the market will resume a more hearty correction to the downside, eventually cycling through the phases til all indices are bearish (like the IWMalready is). However, we are equally open to watching for signs that the ginormous volume indications from last week and the potential island bottom in DIA are yet another extraordinary disregard of bad news with the possibility of a strong quarter ahead. That’s Entertainment!
S&P 500 (SPY) 190.67 is the 200 DMA to clear. Otherwise, a break of 187.50 should prove ominous Subscribers: Positive Pivots in all
Russell 2000 (IWM) Best news is that the red close happened on way less volume than the green days did. 106.90 is support to hold or trouble. And, No it needs to really clear 108.80 for a stab at 110
Dow (DIA) Coming into last Friday, I wrote this had 3 possible scenarios. This was the first one: 1. Gaps up leaving an island bottom. Now, if Friday low holds and we get a second day confirm, I would just follow without thinking too much about it.
Nasdaq (QQQ) This was clean-after the inside day last Thursday under the 200 DMA, it gapped higher over the 200 DMA. Now, 91.95 key support. It still though, must clear 93.89, the August lows as well
XLF (Financials) Doji day right on (slightly under) the 200 DMA. Key to the puzzle after the banks reported well for the most part
KRE (Regional Banks) Marginally held the reversal candle
SMH (Semiconductors) Sitting like Humpty Dumpty on the 200 DMA and has to stay there
IYT (Transportation) Best confirmation I see of the reversal day from last Wednesday
IBB (Biotechnology) 260 pivotal with 269 the 50 DMA and now, Friday’s low closest support
XRT (Retail) Best case for why this market seems to be in trouble-couldn’t close above 83.00
IYR (Real Estate) One more push will get this over the 50 DMA
ITB (US Home Construction) One more push will get this too over the 50 DMA
GLD This looks like its coiling to see a move over the 50 DMA
USO (US Oil Fund) Inside day but no real confirmation that it bottomed more than a weak short-covering rally
XOP (Oil and Gas Exploration) Don’t really like how much this retreated after the 2-day rally last week
TAN (Guggenheim Solar Energy) Subscribers: Reached a profit target and now has to hold 35.30 and clear 37.80
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs 120 pivotal
SGG (Sugar) Subscribers: Over 43.20 gets more interesting
JO (Coffee) Subscribers: Consolidation resolved to the downside for now
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:
DUK If holds 77.20 good miniswing trade to see if this can clear recent highs and go to new highs
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)
PM Love this if holds around 85.50 or stays above 86.00 as the start of a base forming which can bring the move I’ve been waiting for all year
HUM Inside day and unconfirmed phase change to bullish. If holds the 50 DMA 126.95 and can clear 130 could see 135
MAC Reports 10/28 65.09 support at the 50 DMA with 66.54 the resistance to clear
ULTA ORR preferred against the 10 DMA 113.90
ROST Cleared back over the 10 DMA so if holds Friday’s low playing this for new highs
Category 4: N/A
Phase Change:
RAX Small swing position against the converging major moving averages. Over 35.40 should go to fill gap over 36.00
HPQ Had the ORR Friday but didn’t do much-now, over 34.50 has room to resume uptrend
CPHD End of day ORR against the 200 DMA. Now, could see an inside day, but like that support at Friday’s lows for a swing
AXL Reports 10/31 Before the open Doji day right under the 50 DMA. An open over Friday’s highs or around 17.42, and will look at this for a mini to hybrid swing
KSS Inside day Over 57.30 see a move to the 50 DMA and maybe more.
DDD Reports 10/28 Inside day has to clear 42.26 and hold Friday’s lows
X Reports 10/28 Inverted hammer doji. Like if holds around 33.70 then clears the pivots at 34.30 for a mini to hybrid swing
Shorts: ESV GOOG DE RHT CAR
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
ABBV Inside day on the 200 DMA. Negative pivots so if fails 52.84 could see 51.30 or low
MOS Reports 10/30 Inside day near the recent lows. Looks like it has more to go to the downside
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
NBL Reports 10/28. If cannot clear 58.80 looks like it has alot of room yet on the downside
Best Best wishes for your trading,
Michele Schneider
