June 8, 2011
Mish's Daily
By Mish Schneider
The warning phase continues to accelerate at the same time as the oversold conditions. And of course, typical of the market, there are pockets that are on their own. For example, Chinese stocks have been getting slammed. I have been recommending short BIDU and SINA for the last two weeks even before the story hit about Billionaire John Paulson, the Hedge fund master, caught holding almost 35 million shares TRE.TO ( Sino –Forest) a Chinese owned lumber company with holdings in Canada that got smoked because of fraudulent accounting. Not the first time that has happened to Chinese Stocks.
And then there are the ones that are rallying regardless of the selling pressure such as WPI. But do not despair, nothing lasts forever and while we churn around in this warning phase, keeping positions small and looking at the individual setup of each stock or ETF and knowing your specific risk and reward will pay off. With that said, this is the most oversold the market has been in about a year. With the volatility so low, people are expecting a panic sell off and flush. But, it is equally possible that instead, we will see a huge rally. That does not necessarily mean a prediction for new highs or resumption of a bullish trend, but for the meantime, could mean an opportunity to catch some momentum on stronger setups.
SPY** is not only oversold, but also had a Distribution day in volume. However, since we've been watching the exponential moving averages, this one basically touched it and held. Subscribers have instructions for key pivots to use for an entry with a specific risk and reward.
QQQ and IWM the identical situation.
ETF's:
GLD** I will be looking to enter a long position depending on how it opens in anticipation that this can move up to 155 and beyond.
I went home short IYR, but with underlying support, will watch how that opens and then determine my initial stop loss. If it breaks down beneath 60 will stay short.
XLE recovered somewhat today but still has an overall weak chart formation with price action beneath the 50 and the 10 day moving averages. Today's candle interestingly enough is a DOJI plus we had an inside day. Therefore, tomorrow should be pretty decisive as to the next direction in this ETF.
IBB has the very same toppy looking formation as we've been seeing in some of the other stocks and ETF's and skimming along the 50 day moving average which is still pointing up. The activity of the last three days is starting to look a little bit like a potential bear flag which means that unless this can get back through the 10 day moving average, we could see a further correction in biotechnology.
SMH looks identical to the three indexes in that today it tested the exponential moving average. Although this is not quite as oversold as the indexes, it does have bounce potential.
To reiterate, any trade off of the exponential moving average is a trade looking for a bounce and at most a mini swing trade. Overall, if we can get a decent rally, then I will begin to look for indications of fresh rollovers and new opportunities to go short as I interpret the accelerating warning phase at least over the intermediate term, a signal that we still have lower prices in store.
For more detailed analysis join me, along with hundreds of other subscribers, at Mish's Market Minute and get my daily trade picks, trade alerts, training videos, and exclusive analysis tools. Sign up for Mish's Market Minute now and get a free 2 week trial!
Every day you'll be prepared to trade with:
