Under Thin Ice (the 10 DMA)

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Not Even Japan’s 7% Drop Could Scare Our Bulls.

Wednesday all 4 stock indexes experienced one of the ugliest reversal days the markets have seen in years. Then overnight, Japan’s equities sunk 7% due to weak economic data in China. The weight on our markets was clear as they gapped lower by about a 1% to start today’s session. All this negative pressure was digested calmly by all 4 indexes in the first 30 minutes of the day, and then the bulls got to work grinding the markets higher. For today the bearish storm seemed to have subsided, but we still can’t ignore high volume reversal day on Wednesday. The markets closed with nice volume green candles, but two days with one closing near the high of the day does not sound like convincing correction after such a big run up over the last month. Friday before the long weekend will likely have very light volume, and as a result, the markets could easily continue in the direction of the main trend - up. I’d look for resistance in the areas of Tuesday’s trading and support at today’s lows. Next week we’ll find out whether or not the correction has really been contained to 7 hourly bars on our charts.

S&P 500 (SPY) After gapping lower this morning (as all indexes did) SPY closed green but under the 10 DMA.

Russell 2000 (IWM) Held S1 on the gap lower this morning and closed green just below the 10 DMA. 98.09 is the point to clear.

Dow (DIA) Also gapped lower this morning but, closed above the 10 DMA.

NASDAQ 100 (QQQ) Gapped lower this morning and tested, but failed, the 10 DMA Subscribers: Now below the weekly Bollinger Band.

ETFs:

GLD Inside day. The 10 DMA is overhead resistance at 135.02.

XLF (Financials) Confirmed yesterday’s slingshot high. Closed one tick under the 10 DMA.

IBB (Biotechnology) Failed the fast moving average. Gapped below the 179 level that was mentioned yesterday but closed decisively above it.

SMH (Semiconductors) Held the gap from 5/2.

XRT (Retail) Confirmed yesterday’s slingshot high and closed above the fast moving average. Subscribers: 78.47 next level to clear.

IYT (Transportation) Correcting but, held the gap made on 5/7.

IYR (Real Estate) Confirmed the nasty slingshot from yesterday. Tested and held the 50 DMA, which is still sloping up.

USO (US Oil Fund) Also gapped lower this morning but climbed back above the 50 DMA. 33.67 the 200 DMA is the next resistance.

OIH (Oil Services) Another ETF that gapped lower this morning. Started to climb back but still under the 10 DMA.

TBT (Ultrashort Lehman 20+ Year Treasuries) Took out yesterday’s high but closed below. Held the 10 DMA.

XOP (Oil and Gas Exploration) Held the 10 DMA, still very friendly to this sector longer term.

UUP (Dollar Bull) Inside day. Through 22.95 see more upside.

Longs: On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Note: Anything that is on this list is a candidate for a swing trade-(of course market condition is a factor) -use the max risk mentioned along with an opening range stop using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly

Category 1: (Aloha) Positive Phase, Condition 1, 2 days under the FTPs, Risk to Previous Day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:

PSX Good risk on the 10 and 50 DMAs. Needs to clear R1.

Category 2: (Pipeline)N/A

Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy a opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry: (Opening range reversals are good on anything above S1)

BBBY S1 is good risk. Prefer ORR against the 10 DMA. Will also buy on strength if risk is in line.

FDO Positive pivots. Max risk to today’s low. Longer term move to 72.00 possible

FMC Made new highs today with good risk to the 10 DMA. Cleared recent resistance.

WDC Would only consider an ORR against the 10 DMA.

TSLA S1 max risk. ORR reversal against the 10 DMA is best but will consider buying on strength if risk lines up.

Category 4: (Rip Tide) N/A

Phase Change:
AMGN Needs to clear R1. Looks poised for a move upward. Risk to the 50 DMA.
AAPL Needs to hold the 10 DMA and clear R1.

IP Needs to hold the 50 DMA and clear R1

PM Tested and held the 50 DMA. Needs to clear R1, which will clear today’s high and the 10 DMA.
USG Held the 10 DMA. Good risk to the 10 DMA and today’s high and R1 line up.

Shorts:

Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing

WLT Max risk is today’s high at 19.07. Will like a breakdown under the 10 DMA.

GG Inside day under the 10 DMA. Needs to break 26.72 and not clear R1.

TCK Closed under the 50 DMA. R1 is max risk and it needs to break under 27.00.

Category 6: White Cap- N/A