August 6, 2013
Mish's Daily
By Mish Schneider
Every correction starts with a down day, but of course, not every down day is the beginning of a correction. So just how important was today’s market retreat?
On the surface the today’s action seems rather benign, but there are a few caution flags that the bulls should consider:
1. New Lows out-numbered new highs today on NYSE!
2. SPY and DIA had and inside day on Monday that resolved itself to the downside today.
3. All 4 major stock indexes closed lower than the prior day’s low.
4. Complacency as measured by the VIX hit as significant “overbought” level on Monday.
In other words, the market has gotten complacent, it consolidated, its breadth has eroded over the last several weeks, and today all four indexes slid lower because there was a lack of buying. The light volume suggests that the selling was not strong, but what remains to be seen is whether “big volume” will be buyers or sellers.
The result is that today was not just any old “down day”. Today’s lows are likely to be a significant inflection point if they are tested. There are significant risks for the bulls building, but the price and volume action is not decisive.
My plan is simple. If the DIA, SPY, QQQ, and IWM trade below today’s lows in the near term, I will take a very defensive posture. Until then the market’s momentum is still up.
NOTE: I am heading out on vacation until Labor Day Weekend but you will not have any interruption of the daily as Geoff Bysshe, President and/or Matthew Mullins, Assistant Director of Trading Education and Research of MarketGauge will be filling in for me. Have a wonderful rest of August. Trade well!
S&P 500 (SPY) Inside day resolved itself to the down side. The close lower than the inside (and outside) day low is bearish, but it still sits on support. Avoid long below today’s low, watch out for resistance at 170.35. Subs: Key level for move to upside is 170.40
Russell 2000 (IWM) Sling shot pattern means it has the same analysis as SPY. Until its clears 105.15 decisively, the bulls should wait.
Dow (DIA) Thekey level to break on the upside is 105.60-.70.
Nasdaq (QQQ) Thishas been the leader and still looks the best if you are looking for a long, but same thought applies with regard to its Tuesday low – beware. Aggressive longs over 76.70.
ETFs:
XLF (Financials) Broke key support at 20.65. Needs to clear the 10 DMA before making an attempt on the high from 7/23. Moderate support around 20.50.
SMH (Semiconductors) We have a gap overhead and some solid resistance to clear with 38.20 level support to hold
XRT (Retail) Gapped lower and tested the channel previously mentioned. Closed above the 10 DMA.
IYT (Transportation) Correcting and trading inside the big green bar from August 1st.
IBB (Biotechnology) Well, this is no longer resting. This dropped a little over 2% today and broke the 10 DMA. Moderate support around 195.00.
IYR (Real Estate) Bear phase now after last week’s death cross. Continuing its downward slide.
XHB (Homebuilders) Broke down from its inside day. Also broke the 50 DMA, bringing this into an unconfirmed warning phase.
GLD Gapped lower and continued the direction of the phase.
USO (US Oil Fund) The topping candle from 7/19 remains intact. Broke the 10 DMA and filled the gap from 7/31.
OIH (Oil Services) Filled the gap from 7/31 and closed under the 10 DMA.
XLE (Energy) 84.00 is key. But first, needs to clear the 10 DMA.
XOP (Oil and Gas Exploration) New highs today, but closed lower. 63.10 is support.
TBT (Ultrashort Lehman 20+ Year Treasuries) As this came in higher, it keeps the notion that higher rates are the sentiment of the market.
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