Prepared by Geoff Bysshe, President of MarketGauge, filling in for Mish until September 4th.
Mish will be back TUESDAY 9/4 on Twitter.
The markets have spent two weeks consolidating. On Tuesday, traders will be back from their summer vacations and ready to create a direction for this market by the end of this week. This combination of the calendar and congestion should lead to a good move either up or down soon. The break of the last 2-day range a good first indication of any real direction.
Let the market tell you which way it wants to go. The trend is up, but it's still consolidating or correcting depending on the index, so don't assume too much.
S&P 500 (SPY) Gapped over Thursday's high, sold off hard but did not take out Thursday's swing low, and rebounded to close over Thursday's high. It sits between a strong 20 DMA and a weak 10 DMA. The key number on the down side is Thursday's low at 140.19. If that breaks look for 139.35 and then the 50 DMA at 137.83.
Important numbers on the upside are the 141.90 area and 142.08. Next look for 142.30 and then the multi-year high of 143.09
Russell 2000 (IWM) It broke Thursday's low during the sell off but did not break the prior week low. It is also the only one of the 4 market watch charts that did not rebound to back over the 30-min. OR. I think suggests that it settled into a consolidation mode more quickly than the others. Watch this index as the confirming index for the markets true trend if one looks like it is developing.
It sits on top of the 10 and 20 DMAs so if it moves higher it looks like it has the potential to attack the 82.71 highs from 8/21. First is needs to break strong resistance at 82.
On the downside look for support at 80.60, 80.35 and then 80.11 which is the weekly low. The 50 DMA is at 79.50.
Dow (DIA) Still the weakest index based on its 10 and 20 DMA pattern. Friday's low was right at the 130 level that has been so pivotal for the last 2 weeks. It should be support again along with 129.65 and the 50 DMA at 129.19.
It sits below a negative 10 DMA and Friday's high is at the 20 DMA. It really needs to clear 131.57 to get going on the upside.
NASDAQ 100 (QQQ) Friday's spike low took out the major level of 66.00 by a significant amount (65.47). But the market didn't break. If the market heads higher this is bullish.
It sits right on the 10 DMA and the Friday high is right on the trend line from the 8/21 highs. If it moves higher is need to clear 68.67. The 8/21 high is 68.88
If it breaks Friday's low then the next support is all the way down at 65.30-.22 where it finds the 50 DMA and prior swing highs.
ETF's
GLD Took out the low of its consolidation on the 200 DMA then rocketed to new multi-month highs on huge volume. This is a closing breakout of its recent consolidation and trend lines from the all-time highs. If it pulls back it should find support at 162.45, and 161. Look for resistance at 164.90 and the 166 area.
SLV (Silver) Like GLD, it broke out powerfully over its 6-day consolidation at the 200 DMA, and a major weekly trend line. Resistance is at 31.64 and 32.34. After such a big day you can expect R2 at 31.78 to be good resistance also.
XLF (Financials) Its 10 and 20 DMA are still bullish and the last 2 weeks have formed two lows at 14.97. Sitting on top of the 10 DMA, it looks good if it clears 15.20. Next on the upside is 15.38. For support look at 15.05.
IBB (Biotechnology) Has a very nice 5 days of consolidation after breaking out of a multi-week consolidation. Needs to break 136.70 to breakout. Big support at 134.64.
SMH (Semiconductors) Nice strong bounce off the 200DMA area on Friday, but still sits below a negative 10 and 20 DMA pattern. The 33.10 area looks like it will be a pivotal area if it moves higher. The 20 DMA is at 33.30, which will be a big resistance area because of prior lows from early August consolidation.
XRT (Retail) Did not close as well as the general market, but it's sitting above positive 10 and 20 DMAs. Friday's low of 60.86 has been a major line of support and resistance since July. It needs to clear 61.75 to be considered on the long side.
IYT (Transportation) One of the weakest ETFs over the last couple weeks. It is sitting right on the support of a big daily wedge line from the July lows. If it breaks, look for support at 88.41 and 88.00.
IYR (Real Estate) The last week was sloppy consolidation, but Friday closed at the high of the week. The trend is shaping up nicely into a strengthening condition 1 pattern. The key support is 64.88. There is also good support at 65.40 and 65.00.
USO (US Oil Fund) The 35.90 level has been pivotal for almost 2 weeks and it closed right there after struggling to move over it most of the day. 35.90 is now also the 10 DMA area. Friday was a strong bounce off of a strong 20 DMA so it looks well positioned to try to move higher if it can stay over its Friday low area of 35.40-.30.
OIH (Oil Services) Bounced off its 200 DMA, but it has formidable resistance at Friday's high of 40.45, and then again in the 40.80-.90 area. It might find support in the 39.90-39.80 area but 39.40 is the big area it must hold.
XLE (Energy) Has held up better than OIH but is still below its 10 and 20 DMAs which may be rolling over. Friday's high and the 20 DMA are around 71.91 so wait for that to be cleared for longs. 72.50 is the next resistance level. The last two days' lows at 70.98 and 70.61 are the key support.
TBT (Ultrashort Lehman 20+ Year Treasuries) Both it and the TLT broke their 50 DMA on Friday. TBT's fill a gap at 14.65, so keep an eye on that level for support. 14.46 and 14.29 are also important support levels. For resistance look out for the 15.20 area and then the 15.36 area.
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 along with a fudge factor and time confirm. 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:
LNKD Trying to hold its breakout of the 107 level. It has rested for 2 days, now if it heads up it should continue. Must be over 107.75 to enter. Last week's high is the big number to break, 109.38. Max risk 105.97.
AAPL It closed right on the 10 DMA and has had 2 days closing under the FTP. Must be over 663.70 to get long, but watch out for 670 which has been a very pivotal point for a couple weeks and it lines up with R1 at 670.10 - so 670 is the big number to clear. Then there is a gap from 671.50 to 672.60.
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:
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:
PPG Bullish U-Turn, but also had a nice big volume run up to close over a 5-day consolidation. It has been consolidating for a month so it's hard to expect to pick the exact day it may breakout. The big breakout starts over 110.70, and could quickly go to 111.80-.90. 109.60 and 109.00 should be support and major daily support is at 108.30 which is your max risk.
AIG Back over the 10 DMA with a strong close and good volume on the day. The reason to focus on AIG is to anticipate a breakout of the big weekly level of 35.05. Before it gets there, the 34.70 area is resistance. Support is at the FTP, 34.15, and S1, 33.83, and Friday low, 33.65. Max risk is Thursday's low, 33.50.
ALXN Had a strong volume close to complete a FTP Bullish Transition pattern. The 10 DMA also crossed the 20 DMA so it's now a condition 1 stock. I'd prefer an OR reversal where I could use Thursday's low 104.89 as the risk. A retrace to the FTP, 106.56, or S1, 105.63, would be ideal. Max risks 104.89.
AMGN Held up very well on Friday's sell off, but didn't participate in the rally off the lows either. Pivots are positive but I'd be cautious under the FTP, 83.95. It needs to break 84.50 to get going, but then it's in a good position to test the multi-year highs at 85.28 from last week.
GILD has been consolidating within its big gap day range on 8/2. The last 4 days have a very well defined range sitting right on top of the 10 and 20 DMA. I want to be long on the breakout of 58.25 with a max risk of 57. Look for an entry within that range and over S1 at 57.28.
REGN Broke out to new highs on Friday on decent volume. This can be a very thin stock so be careful. I'd prefer a reversal over 146 which is the bottom end of good support starting about 147. Max risk 143.
PNC If financials move this may be ready to go. It has two weeks of tight consolidation while the market has pulled back. Pivots are positive but I'd only be long over the FTP, 62.29. It needs to clear 62.82 to get started. High of the daily consolidation is 63.05.
AXP Friday it had a big volume breakout of a big daily wedge. I'd prefer an OR reversal against the FTP at 57.93 which lines up nicely with key prior highs from 57.86-.76. A good tight risk is S1 at 57.43. Max risk is 57.
V A big volume day with a strong finish coming off the 50 DMA. It closed right at the pivotal area of 128.25. Key levels to break are Friday's high, 128.37 and 128.50. Support for reversal trades comes in at the FTP 127.64, and S1 126.91. Max risk is 126.91.
SPG Had very big volume and a strong close at the 50-DMA. The key number to break on the upside is 159.18. Pivots are positive but I'd rather buy strength, and would not buy under the FTP, 158, with a max risk of 57 - just under S1 at 157.15.
Phase Change:
N/A
Other: If retail stocks are moving I'm watching TGT, LTD, and TJX. If the financial stocks are moving I'm also watching DFS and COF. VLO is at a major weekly breakout level.
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:
Phase Change:
N/A
Shorts:
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
ORLY is either breaking down from a big daily wedge or holding support at 84.35. Be careful of the support at 84.35, and max risk is 86.
HOG Stayed weak all day on Friday but very light volume. Unless the market is very weak I'd focus only on a reversal against the 42.30 level. Max risk is 42.65.
MUR has positive pivots but is an inside day. After a break of a consolidation area and the 50 DMA. Max risk 51.75
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 lows
DE Has pulled back to the 10 DMA. Must be below 75 which is the FTP area to consider a short. S1, 74.44 lines up with Friday's low, 74.37. The next support area is 73.80-.70.
AGCO Closed near the low of the day, but on very light volume. The FTP area of 42.30 has been a pivotal area for 3 days. Must be below 42.30 to be short. S1 is 41.56 and Friday's low is 41.76. Both could be support, but the big number is 41.28. Max risk 43.00.
Others: If the market is weak, I'll also look at BA, FDX, EQT, SWN, WCG.
Best wishes for your trading,
Geoff Bysshe
