Even with the small bounce in certain commodities-gold, silver, oil, coffee, sugar, etc., the cycle of deterioration in the market remained in gear mainly due to a reiteration of low inflation expectations or worse, deflation fears exacerbated by air strikes in Syria.
No surprise that the nastiest damage occurred in the small caps. Monday night I wrote that given the fundamental shift in the phase to Bearish, we were not likely to see any rally or comeback until maybe Wednesday the earliest.
Interesting that Apple and Facebook firmed up in spite of everything. This makes the case for a mid to end of week short covering rallying and perhaps some fresh buying provided neitherAAPL or FB collapse first.
DIA, SPY and QQQ although weaker as well, are in Bullish phases(SPY challenged its phase after the market closed). It is possible that the drop in their prices is in reaction to the small caps and that this correction is actually occurring through the IWM. In other words,IWM is the sacrificial lamb making this a real correction rather than the end game for this rally in the other indices all together.
It’s a theory and not one I would heavily stake on. However, we have been at these price levels in IWM in August, right before a huge rally. Just sayin.
One other important aspect is if the sectors noted below that are close to their 50 DMAs hold up-this will be a crucial point over the next couple of days.
S&P 500 (SPY) The 50 DMA is 197.78 up from yesterday because it is sloping up. At this point, we still have to call this a very healthy correction with the small caps diversion. At least until we confirm into a worsened phase Subscribers: Negative Pivots in all
Russell 2000 (IWM) Confirmed bearish phase. Approaching August lows and oversold territory
Dow (DIA) 170 back to the important pivotal area with the 50 DMA just beneath. Certainly have damage here with the strong reversal from the highs. Still waiting for the fat lady to officially sing though
Nasdaq (QQQ) Best shape and best hope if this can clear 99.50
XLF (Financials) September low 23.19
KRE (Regional Banks) Today’s low down to around 38, if this has a chance of holding, is key support
SMH (Semiconductors) The 50 DMA is 50.02 and 50 has a psychological ring to it!
IYT (Transportation) Also approaching the 50 DMA
IBB (Biotechnology) Watching to see if this can hang out around 272
XRT (Retail) Unconfirmed warning phase-the big concern concerning
IYR (Real Estate) Best news is the approaching support on the monthly moving average
ITB (US Home Construction) 23.00 support for the August hit
GLD Ran to resistance-if cannot clear over 118.05 probably a good short
Metals and Mining (XME) Oversold and a weak bounce
USO (US Oil Fund) Under 34.00 more downside expected
XLE (Energy) Dropped to the 200 DMA and registering oversold-
FCG (First Trust ISE Reserve NatGas) Subscribers: The 80 monthly moving average is at 18.30
TAN (Guggenheim Solar Energy) Subscribers: Inside day which we tried early on to see if there was anything, but the weakness all around too much for it. Over 43.32 worth a second look
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs back up brushing the 50 DMA
UUP (Dollar Bull) 22.75 is resistance
IFN (India Fund Inc.) Holding up better than most
FXI (China Large Cap Fund) That island top I wrote about in early September haunting this chart. However, I like where it’s holding versus July 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: (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:
TAP If holds 75 area-can try 1/2 over pivots ½ over R1 for a miniswing trade
SWKS If holds 56.00 can do ½ over the FTP and ½ over R1 as this is a high performing stock
X Inside day and a good correction if holds 43.42. Can do ½ and ½ FTPs then R1-real close to the 80 monthly moving average
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:
ANN Could be coiling for a move higher if clears 41.63 and holds 40.33
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)
AAPL Missed the 5 minute setup for ½ and then, reluctant to chase in a weak market with this finding resistance at 103. 102 now a good point to hold for an ORR til that clears
KSS Over 62.20 should get this fired up-otherwise, we continue to play out our tail
TWTR Slightly negative pivots but looks better over R1 for a day to miniswing trade
FTR Inside day neutral pivots. Look for a move over R1 6.65 with a hold of 6.44 key
ETR Inside day-negative pivots though-using S2 to control risk
Category 4: N/A
Phase Change:
RIO Confirms a slingshot. And if gaps higher could be a island bottom candidate. Probably what I would watch for
IGT In a warning phase now but with a strong upward sloping 50 DMA. Like over 16.89 risk to 16.68
BXP Still working off the slingshot so like over 116.32 with risk to 114.30 area
XOM Still working off the slingshot so like over 96.80 risk to 95.40
Shorts: On Focus List: WMT DTV NFLX
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
PSX Unconfirmed phase change to warning. Cannot clear 85.00 and under 82.66 has room to 80.00
MON If cannot clear today’s highs, then under 114.08 looks like room to 112 or lower
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
