If this year patterns in the same way it has patterned since it began, then we can assume that the 3 day sell-off beginning Monday in the S&P 500, placing it just below the 50 DMA but above the 100 DMA, should be as equally short-lived as the rallies have been.
If that is the case, then where might the smart money go? Anything interest rate sensitivewould not be my first choice. After all, the FED has left itself ambiguous in that regard. Even though gold and oil based out and rallied, an ease in rates might have helped, but it seems that the real reason for both runs has more to do with the dollar weakening.
Soft commodities have not participated in the gold and oil rallies to date, so not thinking the self-fulfilling, careful what you wish for Ms. Yellen prophecy of rising inflation is coming any time soon.
We came into this week maxed out on the number of equity longs we were willing to hold pluslong both the oil and gold ETFs as a hedge. That turned out well. To date, we are super light on the equity longs, which is great for shopping for new positions and how I prefer to buy anyway-on weakness, especially since I have harped on the sheep theory or exactly as mentioned before-short lived scatter (with some slaughter expected) and short-lived breakouts with a more “herd” mentality when rallies occur.
The Financial Sector (XLF) has been concerning all year, relaying danger even after the successful “stress” tests. However, Regional Banks (KRE) are a focus especially if they hold over 40.00. The other sectors that have led (Biotechnology, Semiconductors, and Retail) have nasty looking candles now and need time to settle down.
Homebuilders (ITB) had an inside day holding above the 10 DMA making that group a place to shop should the market stabilize.
In fact, more I think about it, until we see some reason to build up the portfolio again or until the sheepdogs come back, looks like a stock picker’s market.
S&P 500 (SPY) Unconfirmed warning phase with big volume on the sell-off, landing right on the 100 DMA Subscribers: Pivots Negative in all
Russell 2000 (IWM) Big volume exodus but, still my vote for the first index to buy if 122 holds up
Dow (DIA) Broke all moving averages but has a lot underneath as far as historical price support
Nasdaq (QQQ) That Déjà vu? In March 2014, the IWM broke hard while the others held on until April. Although a bit different this March, this did give me pause once it could not make new highs. Landed on the 50 DMA.
XLF (Financials) 23.75 support and back over 24.10 much better
KRE (Regional Banks) Outperformed and held the bullish phase-40.00 support to hold
SMH (Semiconductors) Unless it gets back over 55, could see 52.25 next
IYT (Transportation) The aberrant sheep was first to act out and now has the 200 DMA in its midst
IBB (Biotechnology) Textbook blow off rally last Friday to study
XRT (Retail) Only broke the 10 DMA so still ok if holds Wednesday’s lows-otherwise, trouble here too
ITB (US Home Construction) Best shape comparatively so look here over 27.90
GLD (Gold Trust) Might need to take a breath here near overhead resistance
USO (US Oil Fund) Cleared 17.00 which makes this pivotal now
XLE (Energy) Over 77.95 clears the 3/18 bar high and the 50 DMA
TAN (Guggenheim Solar Energy) If this gets near 40, that is a gift!
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs more vulnerable looking now but still over the 50 DMA.
UUP (Dollar Bull) The 50 DMA comes in at 25.23 but looking like a fresh buy now over 25.58
EWY (South Korea) Needs to get back over 58.00
RSX (Russia) At this point, has to clear 17.40 and hold
CORN (Corn) Confirmed phase change to recovery-interesting
BAL (Cotton) Wait for futures to clear the 200 DMA at 64.60
*he Interest Rate instrument TLTs, have taken on a Shepherd’s role, seemingly holding up its staff for low rates. The market, which began the week as entertaining and fascinating, Tuesday became annoying seeing as low rates continues to have a double edged sword interpretation.
Seems clear that the advocates of low rates support the idea of helping stabilize commodities prices (particularly oil and gold) so that the overall market avoids getting too spooked about deflation. On the other hand, the FED holding down rates also spooks the market since it speaks to the fear of deflation and a lack of faith in global economies (which of course makes sense with supply/demand so low.)
This is precisely why I am framing the 3/22/15 daily-at some point, the rubber band will snap-I’m thinking that could happen towards the end of the summer early fall when the US turns its eye to the Presidential campaign and the “what if…” mentality.
In the meanwhile, all indices continue to digest recent gains, yet with sloppy action and low volume (that’s kinda good news actually). NASDAQ had buyers around the 108 area, which for now means that hump day should elucidate whether or not it wants to sail from that level, or break it and keep the correction going.
Granddaddy Russell 2000s has clearly performed well as patriarch of the modern family. From the trading action we see in the three other indices, not much can be ascertained just yet other than what seems obvious-correction, grazing, no sea change.
Retail XRT holds the honor of matriarch. Transportation IYT slipped back to an unconfirmed warning phase in its role as the temperamental spawn. Biotechnology IBB, began the week naughty, but does appear to be finding some stability with the underlying, upward sloping 10 DMA to catch it.
Semiconductors SMH after the inside day, broke 57.15 but also has an underlying support area if the 10 DMA turns out to behave like a Tempurpedic. One does not bounce on those mattresses, rather finds forgiving yet firm mattress support.
I hate to pick favorites, but I have to admit I’m partial to the Regional Bank Sector (KRE). Although it broke the 10 DMA, I look at its foibles as buy opportunities and welcome them.
Remember, in the Year of the Sheep I am not expecting sustained gallops or bucks. For the most part, I do expect quiet and fairly boring yet necessary grazing.
S&P 500 (SPY) 208 support then 206.75 with resistance 211.27. Subscribers: Pivots Negative in all
Russell 2000 (IWM) Lets call 123.50 the place to hold should the market get more selling coming in but for the runaway gap to hold the area of support to hold is 125.31
Dow (DIA) 179 great underlying support
Nasdaq (QQQ) I still feel Déjà vu-like looking at the performance of IWM in 2014-it had never cleared to new highs and eventually told the tale for the start of every correction. 108 support, then 107 and 109 point to clear
XLF (Financials) 24.10 the key support
KRE (Regional Banks) Calling 41.06 pivotal
SMH (Semiconductors) Could see 55.50 if cannot get over 57.15 and hold over it early on
IBB (Biotechnology) 353.25 is the mattress 10 DMA to hold
XRT (Retail) 99.55 underlying support should this take some rest
ITB (US Home Construction) closed above 27.83 and has potential for new highs
GLD (Gold Trust) Bottoming formation seems to be in place and playing out
GDX (Gold Miners) We will call 20.00 pivotal after the impressive run
USO (US Oil Fund) 17.00 next hurdle with 16.00 the new support
XLE (Energy) Stuck under the 50 DMA and over the 10 DMA
TAN (Guggenheim Solar Energy) If this ever gets a decent dip-buy it
TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs look good over the 50 DMA Check out JNK if holds 39.08
UUP (Dollar Bull) The 50 DMA comes in at 25.23
EEM (Emerging Markets) So many country funds look like this one-basing action over January highs
EWW (Mexico) Now, until it takes out the base its been trying to forming since December, will wait
EWY (South Korea) Over 58 should continue
RSX (Russia) At this point, has to clear 17.40 and hold
CORN (Corn) Unconfirmed phase change to recovery
BAL (Cotton) Subscribers: Wait for futures to clear the 200 DMA at 64.65