Borrow Money From a Pessimist. He Won't Expect It Back

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Oscar Wilde

This year, one can begin every conversation about the market with, “I’ve got good news and not so good news”. I don’t know about you, but as soon as anyone starts a conversation like that, through clenched jaws, I ask to hear the not so good news first.

We came into last Friday’s session thinking that the market might finally be ready to settle down some, decrease volatility and elucidate direction. We also hoped that the Russell 2000s would at least hold their own while the other indices strengthened.

The not so good news is that the volatility index closed red for the week, nevertheless defended the weekly low as if to say, we acquiesce but do not surrender! Retail dragged some while the Oil and Energy sectors can’t seem do a Houdini and untie themselves from their anchor while underwater.

The Russell’s wound up with an inside day-markedly indecisive but at least closing green and defending the pivotal level of 110. That’s the lukewarm news.

The best news is that the good news outweighs the not so good news as NASDAQ improved its phase to Bullish-although as I always remind you of, needs a second day to confirm that change. The S&P 500, although couldn’t clear the 50 DMA like NASDAQ did, at least flexed its muscle. The Dow, with its island bottom, appears in good shape as well.

Semiconductors and the Financial ETFs performed well to finish out the week and of course, Biotechnology remains lit up with the race for an Ebola vaccine and perhaps a surge in Antidepressant sales.

This week, with regards to the contrarian nature of 2014, begin by looking at the small caps (Russell’s) and which way the inside day range breaks. Look for deflation fears rearing its ugly head again given the dwindling oil prices. Furthermore, watch interest rates which firmed for the week. A move back into the long 20-year Treasury Bonds could also spell trouble.
Otherwise, if we see follow through in the direction the market seems to want to go in, perhaps the spell of the contrarian has broken just in time for Halloween (that, or the Antidepressants kicked in!)

S&P 500 (SPY) The overhead resistance 196.80 (sloping up) at the 50 DMA is now less palpable. 194.50 the place to defend

Russell 2000 (IWM) 110 Pivotal, 108.80 support then 107 and overhead resistance at 112.20 (declining slope) the 50 DMA

Dow (DIA) The 50 DMA is 168.74 resistance with 166 the number to defend for sure

Nasdaq (QQQ) Unconfirmed phase change to bullish-needs another day

XLF (Financials) Unconfirmed phase change to bullish-needs another day

KRE (Regional Banks) Needs to clear last Thursday’s high to stay in the game

SMH (Semiconductors) 46.92 the 200 DMA and overhead at 50.19

IYT (Transportation) Looks good especially after strong earnings out of United Parcel Service

IBB (Biotechnology) Wowza!

XRT (Retail) Confirmed warning phase over the 200 DMA 84.71 pivotal with 86.69 the 50 DMA to clear

IYR (Real Estate) This does have the look of something that can go to new highs

ITB (US Home Construction) Confirmed the Accumulation Phase, looking good over 24.26

GLD Inside day with 119 pivotal

Metals and Mining (XME) Looks like its bottoming

USO (US Oil Fund) Down on Friday but didn’t take out recent lows at least

OIH (Oil Services) Maybe coiling

XLE (Energy) Like OIH, maybe coiling

XOP (Oil and Gas Exploration) Same-could be coiling

TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs broke 120 which remains pivotal unless this begins to break further below 118.70

UUP (Dollar Bull) A close this week over 22.76 is really good