Just A Mechanic Trying To Get A Nut Off

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Jonathan Griffin-Assistant Director of Trading Education and Research MG

Healthy digestion last Friday or another freaky scare for the bulls, reason to come out of the den for the bears? To quote Mr. Bill, “That is the question!”

Have I mentioned startling divergences lately? Oh yes, not since last Friday! The small caps are becoming more and more like the squeaky wheel that wants the grease, however, the mechanic seems to have decided to replace the wheel with the shiny QQQs and DIAs, and muffle the squeaky one by putting it in the junk pile.

Speaking to one of my favorite and smartest oil and gas analysts, we talked about the yield curve and how that flattening not only could explain why the financial sector is holding steady but also why commodities continue to tank as the “deflationary” period takes hold.

Therefore, my advice going into this week is to take note that when a bull market is tiring or perhaps in the last phase of its move, go with the momentum setups in both ETFs and equities for longs and stay away from buying those that have demonstrated weakness. In other words, those instruments are weak for a reason and should the market correct more, will only get weaker still.

S&P 500 Closed red but no real damage done re: No reversal top pattern and held the fast moving average. 200 remains pivotal (SPY)

Russell 2000 (IWM) Back to an unconfirmed phase express train to Distribution. Needs to confirm. Living in its own nasty universe

Dow (DIA) Wouldn’t call Fridays action a real digestion as it close near the lows but that’s only after making new highs. Like to see this come down a bit more and find a decent place to consolidate

Nasdaq (QQQ) Made new highs by 2 cents and closed in the middle of the range. Lots of social media stocks rallied into the close which explains the relative strength compared to the small caps. Looking at Monday, 99.50 a good place to hold

XLF (Financials) Worked off the overbought conditions and now has to hold around 23.45

KRE (Regional Banks) Huge range-not surprising after last Thursday’s rally. Now, moment of truth, can this hold Friday’s lows on the 200 DMA

SMH (Semiconductors) One that could have had a reversal candle-only its semis so we definitely wait for confirmation

IYT (Transportation) Also could have put in a reversal candle from new highs-again needs confirmation

IBB (Biotechnology) Held up very well-that and social media-Yellen’s two overvalued sectors now leading again

XRT (Retail) Back in the range and actually did confirm a possible reversal pattern from new highs. That spells caution

IYR (Real Estate) Held last week’s lows on Friday-a gap below has more downside. Otherwise, over 71.50 could bring in some buying

ITB (US Home Construction) Broke the 200 DMA and back to an unconfirmed recovery phase

GLD Slow deterioration last week as opposed to Silver which just tanked on Friday

USO (US Oil Fund) Weaker oil prices-good for filling up your car

TBT (Ultrashort Lehman 20+ Year Treasuries) I expected TLTs to firm again-however, note that the phase remains in warning

UUP (Dollar Bull) New highs again

FXI (China Large Cap Fund) 39.71-72 is now the August and maybe September low