The Cleansed "Lighter, Less Popular" Bull Climbs Higher

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Tonight’s evening watch was prepared by Geoff Bysshe, President, MarketGauge.

It’s Most of today’s move in stocks was on the gap higher and then in the steady grind higher for about the first hour. After the morning gap and rally, the market just marked time.

However, today’s action did have some noteworthy events such as.

1. IWN out performed by being up 1.3% vs. the SPY and QQQ which were up .9% and .8%.
2. IWM reached (but did not clear) its 50 DMA
3. QQQ (and the broader measure of Nasdaq - the Composite) closed solidly above the prior 2014 highs

So to answer the question asked in yesterday’s commentary…

It looks like Friday was a bullish cleansing of weak holders. While the markets are still very divergent with the QQQ at new highs while the IWM (and DIA) still sit under their 50 DMA, I’ve never found divergences to be good at picking tops until you have a clear day or two of CLOSING DOWN action in all the indexes.

Friday is good example. It may have felt bad if you were long, but by the end of the day the closing prices weren’t all that bad.

But there is one very good pattern to look for in divergences like the one we have now. When the last of the markets finally make it to the highs – the party is over. Yes, I’m suggesting IWM at 120 again because I think it’s safe to bet that it will be the last one to show up at the highs (if it makes it).

I know IWM at new highs may seem too optimistic right now, but that’s not the point. I felt the same way in May of this year, but the market pattern that played out from the breakout in May to the top in July is a very typical one.

So the bigger point is that if the IWM gets t to new highs, don’t think “we’re safe now”. Watch out for it..

S&P 500 (SPY) - Plenty of resistance but the biggest number before the highs is 198.30. Look for support at 196.80.

Russell 2000 (IWM) - Today's high lines up with its 50 DMA then the next resistance is 115.70.

Dow (DIA) - Let's see how it handles the negatively sloped 50 DMA.

Nasdaq (QQQ) - Just keeps going up, but RSI measure is getting a little rich.

XLF (Financials) - Got over 22.80, and closed to change phases to unconfirmed bull.

KRE (Regional Banks) Outperformed the market today to make up for Friday's under performance but still needs to get solidly over 38.50, or it looks like a bearish consolidation. A move lower could turn into a significant drop quickly.

SMH (Semiconductors) - A slow but respectable day. Bulls should keep an eye on this as a leading group.

IYT (Transportation) - Roared in the morning and in the last hour, but too extended to set up for a trade.

IBB (Biotechnology) - Very strong on Friday. Took out its July highs, but has highs from February next. This is a good place to look for consolidation to begin.

XRT (Retail) - out performed to make up for Friday, and now unconfirmed bullish phase, but I still feel too many individual retail related stocks are all over the place in their trends ranging from crushed to strong and holding. This ETF reflects that. I’ll stay away.

IYR (Real Estate) - Solid breakout over 2014 highs. If rates stay low this could well make a run for the 2013 highs at 76.

ITB (US Home Construction) - Still in a solid bear phase, but up 2% today which is big. Let's see what happens if it gets to the 20 and 200 DMAs at 23.67 and 23.84.

GLD (Gold) - Stuck in a range between 128 and 122.

XME (Metals and Mining) - Impressive break out of its 5 day range. I'll be looking for a trade here tomorrow. It could be a good big swing trade. One to watch.

USO (US Oil Fund) - Doing its best to hold 35 which would be a good place to look for a low.

XOP (Oil and Gas Exploration) - Inside day pattern played out nicely today. I'll be looking for trade here tomorrow if, especially if USO bounces. OIH is another one to keep an eye on with this in mind.

FCG (First Trust ISE Reserve NatGas) - 20 is a massive support area but need more confirmation to consider any trade.

TAN (Guggenheim Solar Energy) - Confirmed bull phase and closed over trend line from the 2014 highs. 43 is a big swing level.

TBT (Ultrashort Lehman 20+ Year Treasuries) - TLT - Gave back all its gains from Friday, but there's lots of support around 116.

UUP (Dollar Bull) - consolidating in a bullish way.

EEM (Emerging Markets) - Back on track with the rest of the bullish equity markets. The big picture here is the 45 level which is the top of a mult-year base.

IFN (India Fund Inc.) - Confirmed its bullish phase transition and testing a trend line from the 2014 highs. Keep an eye on it.

EWW (Mexico) - Didn't break over Friday's high like many other markets but if it does it looks like a big breakout.

FXI (China Large Cap Fund) - Nice move up, and very bullish consolidation.