Trading Tip: How We Analyze the Market

October 5, 2011

Mish's Daily

By Mish Schneider

My list of finding tops/bottoms not in order of importance per se: Price, candle patterns, channel formations, volume, alignment and slope of moving averages (phase and strength/weakness of phase) and a bit of fundamentals (although living in a technical bubble seems to be ok). Simplified of course, but a good checklist to determine where the indexes and ETFs are right now.

So, where are they right now? None have changed phase or slope of moving averages. Some had bullish engulfing candle patterns, others not. All took out previous day high and after good volume (Accumulation) followed with less than average today. All are back over August lows. All but SPY back over the 200 weekly moving average. QQQ back above channel low. Fundamentally, some positive news with jobless claims, manufacturing, still gloomy picture overseas.

Is this a bottom? Conclusion: Temporary bottom at best. We have earnings season upon us. Unemployment number Friday. No real change yet in phase or volume and an August low in place. Lots of room to go lower and look like digestion above recent lows and lots of room to go higher and test longer term resistance. Sound hard? Great opportunities for day and miniswing traders, some low risk possibilities for swing traders (today was a good entry day), but real dicey for buy and hold folks right now. In short, you better have a set of rules and discipline to follow.

ETFs: Leaders to Watch:

XLK (Technology) Rallied to and closed beneath the adaptive moving average.

SMH (Semiconductors) 28.00 the 50 DMA, over that looking again at 30.00.

IBB (Biotechnology) Rallied back over 93.50. The 50 DMA 94.25.

Must now Hold:

XLE (Energy) Great follow through after bullish engulfing pattern with spike in volume.

IYR (Real Estate) Lagged but has potential to see 60.00 provided recent lows hold.

XLF (Financial) Back inside a descending channel. If recent lows hold, could take a trip to 12.50.

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