Overdone

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While the Media and Capitol Hill hyper-focused on Weiner's wiener, the stock market continued to falter at an accelerated rate. With QE2 coming to it end and the economy stalling, the stock market has fallen for 6 weeks straight. Adding to this mix is a possible default by the US on its debt and warnings of a downgrade should this happen.

Almost no asset class remained unscathed on the selloff, with the exception of US debt and Gold as investors flocked to "safe havens". Meanwhile, China warned the US about defaulting. Having to reinvest large sums of cash, the Indian central bank still bought US treasuries while bemoaning the fact there was no better alternative.

No one believes that the US will let this default occur. Let's hope that "they" are right as the fallout could be quite serious.

For specifics on our current trading and technical outlook read on.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes

The declines this week with the SPY down 1.42%, and QQQ down 1.5%, has put all the key US indexes into strong warning phases, a clear and further deterioration. However, the longer term up trend is still intact as long as the SPY holds the rising 200 day moving average. Some of the market internals are at levels where bounces and important lows are formed, but indicators can always get more oversold so price action rules. The inside day and weak close on Thursday in the QQQ's was a clue to the continued weakness on Friday. Note change of slope in the 50 day moving average (blue).

QQQ- Testing 200 Day Moving Average

Market Internals

VIX (sentiment): This sentiment indicator has jumped from the lower end of its bands to its midpoint, but not showing fear considering the market action. It is flirting with its 200 day MA, a good intermediate to longer term indicator. Is the lack of panic pointing to a rally as the market is not convinced of this recent down move? Or is it indicating complacency and more to the downside? Either way the market is not likely to be dormant or the volatility will be playable.

Accumulation/Distribution Volume: This week's activity produced two more distribution days in the SPY, as we are still on a sell signal with institutions and big players still unloading. No evidence of a climax sell off for now.

Up/Down Volume: This short term volume indicator has been bouncing from overbought to oversold where it is bouncing from now. It hit its lowest level since last May.

Sectors

XLF (financials): This sector has been leading the market down and is already in a distribution phase. Can it hold on the weekly? This needs to strengthen in order for the indexes to mount a significant rally. Goldman Sachs held up on Friday, as the media reversed its negative outlook on Goldman's role during the financial meltdown.

XLF- RSI is oversold and we are at an important trend-line

Goldman Sachs (GS) Closed up almost 2% on Friday as it touched major support

Gold (GLD): Gold has been outperforming most assets during the past 6 weeks but took a hit on Friday as it approached all-time highs. Trend is still strong but we need to hold the trendline and channel as shown.

MMM Premium-Featured Mini Swing Trade

The featured trade this week was IYR (real estate ETF). With all the bad news about real estate, IYR set up with an inside day and trading around the 50 day MA, the perfect storm for a short mini swing trade. This was good for almost 5% by the close on Friday. The massive volume might have been a blow-off to the downside, so we closed out the trade on Friday at the end of the day.