At the risk of stating the obvious, last week was highly unusual. Looking deeper, what can we assess from a market that went from threatening to break the 200 day moving averages at the beginning of the week to ending up 5% by week's end? This sort of activity has only happened 43 times since 1950. In other words, this was the 29th best week in over 3207 weeks since 1950. So, rare? For sure. Violent 5% shifts typically occur around extreme market stress. Therefore, one might conclude that a market that goes from extremely oversold into a relief rally that clearly gets carried away, is exhibiting instability. The Greece austerity plan and the ISM number were factors; a "I don't want to miss the boat" psychology prevailed and technically, the week left the market extremely overbought, but certainly in a bullish phase.
SPY closed up 1.5% on Friday as did QQQ. Both had Accumulation Days in volume. Similar story in IWM. It (as well as the other indexes) broke out from a trendline that connects from the highs made on May 2nd to the last swing highs made on May 31st preceding the dump to the 200 DMA. That last swing high is 84.86. With a close on Friday at 84.03, at this point, the risk/reward for the long side is out of whack. There is underlying support at 82.15 where both the 50 DMA and the retracement to the trendline sit. With QQQ the support comes in at 56.50 area and SPY, 131.40 then 130.
Since a major concern for any new long positions is risk, other than using tight stops for the more active traders, I am inclined to wait for a dip or at the very least digestion at these high levels until the overbought condition abates before going aggressively long now. We had huge gains over the last two weeks in the bigger and midcap stocks, took profits along the way even though we are still long what we call a "tail" of the original entries with big cushions for swing trading.
Featured ETFS: I am purposely omitting writing about the sectors and groups that have been leading the way such as IBB, XRT, and IYR as they are all highly extended but very bullish. As with the indexes, I will be waiting for a correction before considering a new entry. The featured ETF's today represent those that are either not overbought, or seemingly dragged up with the market and good candidates for going short should the market begin to correct this week.
SMH once it broke from 33.50 it rallied right up to the 50 day moving average at 34.87. What might come as a surprise is that the slope on the 50 day moving average is still down. The semis will be a good area to watch since they ran into resistance, the downward sloping 50 day moving average and are overbought. There is good support at 33.50 down to 33.30 where the 10 day moving average is, with some interim support at 34.30 where the 70 day exponential moving average is. If it breaks 34.10, and S1, then I would anticipate a test of these underlying areas. Otherwise, a close above 50 day moving average and the next overhead resistance is at 35.25.
XLE confirmed back into a bullish phase, but underperformed the rest of the market on Friday. Has underlying support around 74.45 where the exponential moving average is. Unlike semiconductors, this ETF never broke the 200 day moving average. The energy sector is a good one to keep an eye on for a correction and buy opportunity. In OIH, like to see a dip down to 149.80.
DBA**with the strength of the market this was unable to confirm into a distribution phase, testing and holding the 200 day moving average. The overhead 50 day moving average is still declining even with the rally. Under 32 the confirmation beneath 31.81 where S1 is, will be a sign of weakness. The recent low before the market rallied was 31.46. Beneath that we are looking at 31.03 where the 50 weekly moving average is. Unless this gets above 32.22, 10 day moving average, will look at this for a short entry.
SLV was short this early last week, but covered in the market began to firm. It's been holding the exponential moving average at 32.67 with last week's low 32.53. Now, unless it gets a back above 33.27, a break of Friday's low 32.61 and we should see a further decline in silver with best underlying support at the 50 weekly moving average around 28.95.
FXE what is interesting on this chart is that a gap left from June 8 to 145.07 has not filled with the most recent high made last Thursday at 144.86. With negative floor trader pivot's for Tuesday, under 144.45, we could see a correction with underlying support now at 143.50. UUP is in a bearish trend, but held 21.19 the low from Thursday and S1. With Neutral pivots (FTPs) and oversold conditions, could see a strengthening of the dollar with overhead resistance at 21.50. Overall, the trend in the Euro is bullish therefore I would regard any correction for a short-term basis.
FXI has now rallied up to significant resistance around 43.55 after an impressive rally back above the 200 weekly moving average at 42. Since the daily moving averages are still in a death cross, unless this trades above 43.82, a break of 43.18 the FTP and then Friday's low 42.84 and we could see a retest and possible breakdown of the 200 weekly moving average.
Picks: New subscribers please note that if I **a pick it means that if the setup on the open matches the parameters that I write about, I will primarily focus on those stocks and ETF's. Similarly, Day to Swing means that if the stock or ETF sets up according to the parameters I write about, it is one that you can either daytrade , mini swing or hold onto for a swing trade which typically means a week to a month or longer. Those of you who are only able to watch the open, and prefer to swing trade can use the list by setting up on your trading platform the ones that are both **and recommended for swing trades. Also, I suggest you sign up to follow me on the private twitter as I am happy to answer questions on any particular stocks or ETF's you might be interested in swing trading but are unclear as to whether or not they are set up appropriately. Finally, do not be afraid trade more expensive stocks. As long as the risk is clear, the percentage of profit is much higher. Often times, people perceive cheaper stocks as safer trades.. Usually, cheaper stocks are cheap because they do not have substantial upside potential. If you do not have the equity in your account to cover the margins on more expensive stocks, you might consider looking at options as I give targets and risk points as a way for you to price in and out of the money calls.
All of the selections underperformed the market on Friday which means they either have a reasonable risk and possibility of not only catching up but surpassing the market to the upside, or should the market correct, candidates for a short. Many of the stronger stocks, am now waiting for short-term trading patterns before considering a new entry for anything other than a day trade.
Longs:
ATI**last Thursday and Friday did not keep up with the rest of the market. But it held the 200 day moving average, the 160 exponential moving average, and the 10 day moving average which now gives it major support around 61.40. On its first attempt it has failed the declining overhead 50 day moving average at 65.32. The weekly chart is still positive. It now has two days under the floor trader pivot which is negatively stacked. That means that it must not only hold 62.80, but ideally get back over R1 at 63.72. Friday's low was 61.88. If it opens lower, then wait to see what happens around 61.40. If it opens unchanged, takes out the five-minute opening range, can risk to Friday's low. If it opens higher, then can buy it on retracement back to the floor trader pivot or above R1. The 50 day moving average is good resistance. If it can take out the 50 day moving average, has a projected move to about 72. Day to swing.
CRM*the original entry was at 140 area. But since it did not perform as well as the rest of the market, is not overbought and still has the possibility of a move up to the all-time high at 153.99. Friday was a DOJI day which means the opening and closing price is exactly the same. Typically, that means a pause and also gives a good area to trade from. The floor trader pivot's are positive and come in at 149.07. If it opens above the FTP and clears 149.36, the risk is a bit rich for a new swing trade, but could give a decent day to mini swing trade.
NFLX had a bullish engulfing pattern and is the one pic I'm including which out performed the market. With positive pivots, if it holds 266.10 the FTP, and takes out last week's high at 268.74, could go to the all-time high made in early June at 277.70. Plus, still has potential for new highs. Would also consider looking for an opening range reversal. At this point, I would not risk more than to S1 at 263.92. Day to mini.
VMW had an inside day on Friday. With neutral pivots must now hold 99.43 and clear 100.05. Our original entry was at 97.85 for a swing trade. Therefore, for new entries, tighten the risk to 96.50 where S1 is for an opening range reversal and use the FTP if buying strength. Multiyear high is at 102.74 a good target. All time high was made in 2007 at 125.25. Day to mini.
PAY**another one that sold off on Friday with two days under the floor trader pivot. Is above 200 day moving average, the 160 exponential moving average and the 10 day with good underlying support now at 43.35. If it clears 44.13, the FTP, daytraders have a tight risk to Friday's low 43.76 and mini swing traders can use Friday's the exponential moving average at 43.35. Similar chart pattern to ATI, has overhead resistance at the declining 50 day moving average at 46.30 but a positive weekly chart. If it clears the 50 day moving average, has the potential to run up to 57. Swing traders would have to use a risk to under the 200 day moving average 42.19. Day to swing.
LO** held the 50 day moving average all last week and closed right above the 10 day moving average at 110.16. Underlying support at 108.87, the risk for swing traders. If it holds above 110, mini swing and day traders can use under 109.40 which is the the low on the 30 minute chart from Friday's intraday activity. Would like to see it clear Friday's hi 111.75. If it does, next resistance at 113.88. All-time high was made in May at 116.86. On the weekly chart has a projected move up to 124.55. Day to swing.
CF looking at this for a day trade with two days under the floor trader pivot, a move above 140.23 and could see a quick pop up to Friday's hi 143.43 and possibly to 146.40 to fill the gap. Day trade
POT* if it holds up above 55.57, that will hold the gap up from last Wednesday. With an inside day on Friday, as long as this stays above 56.24 where the FTP is, although it is negatively stacked, using the gap low with a slight fudge factor to 55.49 S1 as your risk, could see more upside especially if it breaks and closes above 57.35 a trendline coming down from the high made in February at 63.97. Day to swing.
Shorts: If the market is weak, then will be looking at the ETF's I wrote about above. Many of the stocks that are still below the 200 DMA or in a bearish phase, have strong positive pivots. Therefore, I will wait for better setups before recommending those stocks.
DO*had an inside day on Friday, is holding the 200 day moving average at 69.74 and could not close above the declining 50 day moving average overhead at 70.93. With a negative stack of the FTP's, below 70.24 could use the 50 day moving average as a reasonable risk and if it breaks Friday's low 69.55 it is back under the 200 day moving average with next support down at 68, the 50 weekly moving average. Day to mini.
Have a great July 4th!