What Blond in the Kitchen?

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The Seven Year Itch

I promise you I am not trying to compete with the Secret Life of Walter Mitty written by James Thurber with my visions of horses and sheep or my 3 “tells” that “speak” to me concerning the market. I do find fascinating though, that the name Walter Mitty and the derivative word "Mittyesque" have entered the English language, denoting an ineffectual person who spends more time in heroic daydreams than paying attention to the real world.

Rather, I propose the antithesis. My musings are intended to provide you with imagery and humor to humanize the market while offering you valuable, pertinent and timely information about your investment decisions.

For starters, the market capped the end of over a yearlong phenomenon with the S&P 500 finally closing red 4 days in a row with Tuesday’s action taking it to 5 days in a row. Yet, let’s invoke the final cycle of an active traders’ portfolios during every market correction: (From January 5ths daily) #5. After the correction wanes, the picks that have held up in a positive phase or condition, look to buy with tightest risk. Also look for strong reversal patterns. There are several reasons to keep that in mind for Wednesday.

1. The Russell 2000s weakened into an unconfirmed warning phase while the other 3 indices confirmed their warning phases. However, the IWM held the 100 and 200 Daily Moving Averages and with near term oversold conditions and accelerating volume, popped above that support level and back above daily chart support over 115.00 (the 50 DMA overhead must clear as well at 116.77 or could be the resistance to sell into).

2. The TLTs or 20+ Year Treasury Bonds could have a blow off top in the works. On Monday the rally was met with good volume. On Tuesday the volume was nearly 3 times the normal average with a gap higher. That means that we look for either an inside day on Wednesday with a red close or maybe even a more dramatic signal like a gap below Tuesday’s low and a possible island top. Regardless, eyes here definitely.

3. Oil. Looking at USO the United States Oil Fund, we have had 3 days of accelerating volume and declining prices with extreme oversold conditions. The pundits can take a bow on the price under $50.00 per barrel prediction, but we traders are circling the chart for signs of a bottom. I am a real fan of volume patterns but we also need to see some technical confirmation. Perhaps an island bottom or at the very least, a recapture of 19.70, last week (and year’s low).

In the past, I have referred to The Seven Year Itch, the play written by George Axelrod, who used Mittyesque qualities for his main character to contrast his ordinary life. During 2007-2008 the market declined 56% taking 1,981 days to recover, with the peak low tick in March 2009. Here we are 7 years and an amazing rally later.

Dr. Brubaker: “When something itches my dear sir, the natural tendency is to scratch.”

S&P 500 (SPY) Closed under 200 the major support of the 100 DMA and now 197.86 the December low is up for grabs unless this comes in or closes above 200.50. Then we might see a rally to the 50 DMA.

Dow (DIA) 172.38 the 100 DMA then, 169.36 the 200 DMA while a move over 175 should be some relief

Nasdaq (QQQ) Oversold on the daily and weekly timeframes. Seared beneath the 100 DMA and the December lows. Either this comes in over 100.50 for a relief rally or we could see 96.00

XLF (Financials) 23.68 the 100 DMA

SMH (Semiconductors) Now, succumbing to pressure, it is in an unconfirmed warning phase with support at 51.85

IYT (Transportation) As the first one to crack last week, now will be interested to see if this holds 155.60 and the December low especially since read that FedEx was upgraded

IBB (Biotechnology) 300-310 the range to watch for a break either way. It tested and held the 50 DMA

XRT (Retail) Still holding the 50 DMA for now

IYR (Real Estate) 78.00 pivotal. 79 good resistance

ITB (US Home Construction) 25.05 the 50 DMA which was tested and held making this one place to look for longs if market holds

GLD (Gold Trust) Impressive if it can last

GDX (Gold Miners) 20.00 now pivotal support

OIH (Oil Services) May be noteworthy that it held the December lows 33.54

XLE (Energy) Holding December lows

UUP (Dollar Bull) Runaway gap confirmed unless it breaks 24.00