Time To Pick A Direction

---

Today's Mish's Daily was prepared by Geoff Bysshe, co-founder of MarketGauge.

The markets have spent two weeks consolidating. On Tuesday, traders will be back from their summer vacations and ready to create a direction for this market by the end of this week. This combination of the calendar and congestion should lead to a good move either up or down soon. The break of the last 2-day range a good first indication of any real direction.

Let the market tell you which way it wants to go. The trend is up, but it's still consolidating or correcting depending on the index, so don't assume too much.

S&P 500 (SPY) Gapped over Thursday's high, sold off hard but did not take out Thursday's swing low, and rebounded to close over Thursday's high. It sits between a strong 20 DMA and a weak 10 DMA. The key number on the down side is Thursday's low at 140.19. If that breaks look for 139.35 and then the 50 DMA at 137.83.

Important numbers on the upside are the 141.90 area and 142.08. Next look for 142.30 and then the multi-year high of 143.09

Russell 2000 (IWM) It broke Thursday's low during the sell off but did not break the prior week low. It is also the only one of the 4 market watch charts that did not rebound to back over the 30-min. OR. I think suggests that it settled into a consolidation mode more quickly than the others. Watch this index as the confirming index for the markets true trend if one looks like it is developing.

It sits on top of the 10 and 20 DMAs so if it moves higher it looks like it has the potential to attack the 82.71 highs from 8/21. First is needs to break strong resistance at 82.

On the downside look for support at 80.60, 80.35 and then 80.11 which is the weekly low. The 50 DMA is at 79.50.

Dow (DIA) Still the weakest index based on its 10 and 20 DMA pattern. Friday's low was right at the 130 level that has been so pivotal for the last 2 weeks. It should be support again along with 129.65 and the 50 DMA at 129.19.

It sits below a negative 10 DMA and Friday's high is at the 20 DMA. It really needs to clear 131.57 to get going on the upside.

NASDAQ 100 (QQQ) Friday's spike low took out the major level of 66.00 by a significant amount (65.47). But the market didn't break. If the market heads higher this is bullish.

It sits right on the 10 DMA and the Friday high is right on the trend line from the 8/21 highs. If it moves higher is need to clear 68.67. The 8/21 high is 68.88.

If it breaks Friday's low then the next support is all the way down at 65.30-.22 where it finds the 50 DMA and prior swing highs.

ETF's

GLD Took out the low of its consolidation on the 200 DMA then rocketed to new multi-month highs on huge volume. This is a closing breakout of its recent consolidation and trend lines from the all-time highs. If it pulls back it should find support at 162.45, and 161. Look for resistance at 164.90 and the 166 area.

SLV (Silver) Like GLD, it broke out powerfully over its 6-day consolidation at the 200 DMA, and a major weekly trend line. Resistance is at 31.64 and 32.34. After such a big day you can expect R2 at 31.78 to be good resistance also.

XLF (Financials) Its 10 and 20 DMA are still bullish and the last 2 weeks have formed two lows at 14.97. Sitting on top of the 10 DMA, it looks good if it clears 15.20. Next on the upside is 15.38. For support look at 15.05.

IBB (Biotechnology) Has a very nice 5 days of consolidation after breaking out of a multi-week consolidation. Needs to break 136.70 to breakout. Big support at 134.64.

SMH (Semiconductors) Nice strong bounce off the 200DMA area on Friday, but still sits below a negative 10 and 20 DMA pattern. The 33.10 area looks like it will be a pivotal area if it moves higher. The 20 DMA is at 33.30, which will be a big resistance area because of prior lows from early August consolidation.

XRT (Retail) Did not close as well as the general market, but it's sitting above positive 10 and 20 DMAs. Friday's low of 60.86 has been a major line of support and resistance since July. It needs to clear 61.75 to be considered on the long side.

IYT (Transportation) One of the weakest ETFs over the last couple weeks. It is sitting right on the support of a big daily wedge line from the July lows. If it breaks, look for support at 88.41 and 88.00.

IYR (Real Estate) The last week was sloppy consolidation, but Friday closed at the high of the week. The trend is shaping up nicely into a strengthening condition 1 pattern. The key support is 64.88. There is also good support at 65.40 and 65.00.

USO (US Oil Fund) The 35.90 level has been pivotal for almost 2 weeks and it closed right there after struggling to move over it most of the day. 35.90 is now also the 10 DMA area. Friday was a strong bounce off of a strong 20 DMA so it looks well positioned to try to move higher if it can stay over its Friday low area of 35.40-.30.

OIH (Oil Services) Bounced off its 200 DMA, but it has formidable resistance at Friday's high of 40.45, and then again in the 40.80-.90 area. It might find support in the 39.90-39.80 area but 39.40 is the big area it must hold.

XLE (Energy) Has held up better than OIH but is still below its 10 and 20 DMAs which may be rolling over. Friday's high and the 20 DMA are around 71.91 so wait for that to be cleared for longs. 72.50 is the next resistance level. The last two days' lows at 70.98 and 70.61 are the key support.

TBT (Ultrashort Lehman 20+ Year Treasuries) Both it and the TLT broke their 50 DMA on Friday. TBT's fill a gap at 14.65, so keep an eye on that level for support. 14.46 and 14.29 are also important support levels. For resistance look out for the 15.20 area and then the 15.36 area.

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!