Every Horse Thinks Its Own Pack Heaviest

---

Thomas Fuller

Japanese Candlestick formations are a great tool. Not the only tool we use, but certainly if not thing else, so much fun to study. Coming into last Friday’s session, the double harami or 2 inside days in the small caps (IWM), although not as clean a move to make it textbook, resolved eventually to the downside with follow through on Monday.

The inverted hammer in NASDAQ and the IWM from last Friday, again not text book, resolved themselves to the downside as well making the beginning of this week either a setup for some unbelievable buy opportunities, or the start of shorting every rally until further notice.

And of course I would be remiss not to mention the contrarian horse theory. Typically, the next 3 weeks are among the most profitable for the year. OPEC has been higher 80% of the time during options expiration, which happens this week. Since 1980, the SPY has been higher in December 82% of the time when the market has been in a bullish phase.

Losses are generally less than one percent. The biggest drawdown was in 1986 at 2.8%. So which will it be? The galloping horse or the one that bucks the trend?

Continue to watch Interest rates, Oil and NASDAQ carefully. Options flow on the buy side has been scant. If that changes or volume (not usually expected from here on in until 2015) comes in, then have more confidence in the trend. Nonetheless, I continue to advise caution with smaller positions sizes, tighter stops and shorter timeframes.

S&P 500 (SPY) So contrary-unconfirmed phase change to warning. Upward sloping 50 DMA so a recapture of 200.28 better

Russell 2000 (IWM) Unconfirmed phase change to bearish. Only a recapture and hold over 114.23 would change that. I do like the upward sloping 50 DMA here as well.

Dow (DIA) So contrary-unconfirmed phase change to warning. Upward sloping 50 DMA so a recapture of 172.51 better

Nasdaq (QQQ) The 50 DMA holdout which comes in at 100.75. Last time the other 3 indices broke they’re major moving averages, this held the 50 DMA firm-so we shall see.

XLF (Financials) Also holding the 50 DMA so far at 23.72-look here for a rally even if it’s short term

KRE (Regional Banks) Broke the 3 moving averages and has to confirm. A move over 39.32 would be impressive

SMH (Semiconductors) Definitely faring better than the others and super far from the 50 DMA.

IYT (Transportation) Closed slightly green and above the major moving average. However, this is working a breakdown from the highs as well

IBB (Biotechnology) Sliced below that 305 support, now resistance with next support the 50 DMA 290 area.

XRT (Retail) Another one that did well but still has a reversal candle near recent highs therefore until it takes out 94 not that impressed.

IYR (Real Estate) Broke 76 which is now some minor resistance

ITB (US Home Construction) 24.00 key

GLD (Gold Trust) Broke the critical 115.75 and followed through for a really good daytrade at least.

USO (US Oil Fund) 4 days of major selling and higher than average volume. Oversold. Will look for an inside day maybe even a positive close and then perhaps a near term bottom is in place

TBT (Ultrashort Lehman 20+ Year Treasuries) 46.32 was the 10/15 low in TBTs. Made a new low today and closed higher-maybe some relief ahead