Healthy digestion last Friday or another freaky scare for the bulls, reason to come out of the den for the bears? To quote Mr. Bill, “That is the question!”
Have I mentioned startling divergences lately? Oh yes, not since last Friday! The small caps are becoming more and more like the squeaky wheel that wants the grease, however, the mechanic seems to have decided to replace the wheel with the shiny QQQs and DIAs, and muffle the squeaky one by putting it in the junk pile.
Speaking to one of my favorite and smartest oil and gas analysts, we talked about the yield curve and how that flattening not only could explain why the financial sector is holding steady but also why commodities continue to tank as the “deflationary” period takes hold.
Therefore, my advice going into this week is to take note that when a bull market is tiring or perhaps in the last phase of its move, go with the momentum setups in both ETFs and equities for longs and stay away from buying those that have demonstrated weakness. In other words, those instruments are weak for a reason and should the market correct more, will only get weaker still.
S&P 500 Closed red but no real damage done re: No reversal top pattern and held the fast moving average. 200 remains pivotal (SPY) Subscribers: Negative Pivots in all except DIA
Russell 2000 (IWM) Back to an unconfirmed phase express train to Distribution. Needs to confirm. Living in its own nasty universe
Dow (DIA) Wouldn’t call Fridays action a real digestion as it close near the lows but that’s only after making new highs. Like to see this come down a bit more and find a decent place to consolidate
Nasdaq (QQQ) Made new highs by 2 cents and closed in the middle of the range. Lots of social media stocks rallied into the close which explains the relative strength compared to the small caps. Looking at Monday, 99.50 a good place to hold
XLF (Financials) Worked off the overbought conditions and now has to hold around 23.45
KRE (Regional Banks) Huge range-not surprising after last Thursday’s rally. Now, moment of truth, can this hold Friday’s lows on the 200 DMA
SMH (Semiconductors) One that could have had a reversal candle-only its semis so we definitely wait for confirmation
IYT (Transportation) Also could have put in a reversal candle from new highs-again needs confirmation
IBB (Biotechnology) Held up very well-that and social media-Yellen’s two overvalued sectors now leading again
XRT (Retail) Back in the range and actually did confirm a possible reversal pattern from new highs. That spells caution
IYR (Real Estate) Held last week’s lows on Friday-a gap below has more downside. Otherwise, over 71.50 could bring in some buying
ITB (US Home Construction) Broke the 200 DMA and back to an unconfirmed recovery phase
GLD Slow deterioration last week as opposed to Silver which just tanked on Friday
USO (US Oil Fund) Weaker oil prices-good for filling up your car
TAN (Guggenheim Solar Energy) Subscribers: 43.60 a good point to hold if good-broke it intraday on Friday. I will look to buy this over R1 against that level
TBT (Ultrashort Lehman 20+ Year Treasuries) I expected TLTs to firm again-however, note that the phase remains in warning
UUP (Dollar Bull) New highs again
EWP (Spain) Subscribers: We took the teeniest loss on the probe and will not give up if it clears the converging moving averages this week-good confirm now is a move over 40.75
FXI (China Large Cap Fund) 39.71-72 is now the August and maybe September low
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:N/A
**NOTE: This past week was a perfect illustration of how we cut losses quickly and with minimal damage while letting the profits run. This not only protects the portfolio from volatile downdrafts, but also allows us to outperform the market consistently. We took minor losses in PXD MRVL EWP and huge gains in GS KSS and BAC. If there is a saner and more calculated swing trading system that’s run by a discretionary trader(s) out there, please let me know!
Category 2: N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy a 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)
ESRX Made a big move on September 5th and has spent the last 10 days in that range. 73.00 max risk now. Ideally sho9uld clear 75.50
FB Fantastic end to the week here and now like a hold of around 76.90. 78.36 has been the high this year
PM Nice move on Friday and a good close. Been there before so want to see this clear 86 and hold 84.50
FTR Inside day over the 10 DMA. Has to hold Friday’s lows and clear 6.65
ETR Inside day and over the 80 monthly moving average. Real risk is to the 50 DMA at 75.19 and has to clear 77.03
Category 4:N/A
Phase Change:
EMR Unconfirmed phase change to recovery. Has to hold Friday’s low and really clear 65.50
NNN Has to confirm the slingshot low off the 200 DMA, hold Friday’s lows and clear 35.36
WMT Personally don’t like buying strength in this so wait for an ORR ideally to control risk to the 200 DMA
BXP Slingshot low last week and even though it closed red, outperformed. If holds 116.80, can see a move up over 117.82
XOM Outperformed after a slingshot low. Now, if holds Friday’s lows, has room to the 200 DMA and if good, should continue through it
T Still like provided it holds 35.00. 36-36.50 next resistance
AMZN after 3 inside days last week, broke to the upside Friday-now look for an ORR or move over the 50 DMA 334.10
MRVL R1 and Friday’s high line up-14.02 will get in again over that level for a full position against 13.60
Shorts: On Focus List: NFLX CHK EBAY
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
CAM If this gaps lower, close your eyes and sell a 5 minute breakdown. If not, wait for an orderly 30 min OR breakdown if risk is good under Friday’s low
JOY If cannot clear 58.60 then under Friday’s lows another good one to close your eyes and short
OXY If cannot clear 98.64 and risk is good, still see this going lower-200 DMA is 96.81
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
