Evening Watch for Jan. 17th 2012

Mish Schneider | January 16, 2012

Standard and Poor's gave everyone something to write about over the weekend with their EU Downgrades wreaking some havoc on Friday in the market. And once a market creeps up on low volume, there is never any great surprise when it comes tumbling down just like that! Of course, the real question is-was that a reversal or a good, healthy cleaning out of the weaker longs? Earnings Season has begun!

S &P 500 (SPY) The breakaway gap is off the table. SPY held the 10 DMA. Volume on Friday created a distribution day. It has pulled back from the attempt to take out the 10/27 high, but maintains in an accumulation phase with positive sloping moving averages and a longer term positive phase intact.Subs-Negative pivots (in all indexes) at 128.54 with R1 129.39

Russells 2000 (IWM) Held the 200 DMA but could not close out the week over the 65-weekly moving average. Also a distribution day in volume. Not irreparable damage but definitely worth watching if fails 75.90. And at this point, needs to clear 77.00

NASDQ (QQQ) Since this had the breakaway gap before the other indexes on the first trading day of the year, it is here we must watch to take the lead. Some important earnings coming up. Subs-Pivots negative at 58.02 with R1 58.36. Alos GOOG and AAPL lead the week with earnings.

ETFs:

GLD There was one good swoosh after the EU announcement, then this spent the rest of the day climbing back, ending over the 200 DMA. Long trend remains positive for now. Subs-if cannot clear 159.90, will continue to watch for a short entry. Due to the holiday-no position for now

XRT (Retail) Closed pretty much in the middle of the New Year's trading range leaving the next direction unclear. Subs-Positive Pivots at 52.77 with a positive slope on the underlying 50 DMA. Still like this over last week's high 53.20 and would not look to short if corrects further from here.

XLF (Financials) In order for the breakaway gap to stay in place, XLF must not trade below 13.55. With Friday's EU downgrade news, the low was 13.58, hence the gap remains intact. Watching to see if XLF continues to hold the gap. And considering the round of earnings forthcoming, if it does, will take that as a positive sign for this sector. Subs: If gaps lower leaves a possible top against the 200 DMA in place (2 days to confirm that) than the October 27th and January 12th highs begin to look like ominous signals of a double top.

IYR (Real Estate) Good close on Friday. 57.89 the point to clear. Then could see 60.00.

IBB (Biotechnology) The gift that keeps on giving since it cleared 2011 high. Hard to get real negative with this sector so strong.

SMH (Semiconductors) Backed away from 32.74 the 11/16 high and held the breakaway gap. Under 31.34 not a good sign, but if holds here, remains a great potential.

XLE (Energy) managed a close above the 50 DMA after 3 rough days down. At this point, would look at a rally as a point to short. That changes only with 2 closes above the 200 DMA.

Longs: As you can see from the description of the indexes and ETFs, we are at a crossroads in the market with lots of key earnings coming up. Therefore, will be closely monitoring the Macro picture as we enter the week before over committing to positions. Note: Thanks to those who took Phases and Forecasts and spent the first 2 weeks of the year with us. Would love to see you stick around; otherwise, wish you the very best in your future trading and hope to see you again.

PXP Is in a Bull phase but not a Condition 1. Has negative pivots at 36.09, therefore must clear R1 and Friday's high 36.64 since it held the 50 DMA. Risk is 35.15 the 50 DMA. See potential in this to 2011 high 41.96 and beyond. Day to Swing

ESRX Had an inside day and tried but backed away from staying above the 200 DMA and the 65 weekly moving average. Pivots are positive at 48.81 with a clear risk to 47.96, last Thursday's low. 49.32 is the 200 DMA would like to see clear, then 51.15 the 65 weekly with then a possible run to 55 before earnings. Day to Short-Term Swing

El Did you think I would forget about this pick? Essentially it has just compressed in a range holding over 110 and sputtering at 113.00. Once that range breaks one way or another, expect follow through. Day to Swing.

JOY Inside day and DOJI resting on the 50 DMA at 82.61 with negative pivots at 82.77 . Had a breakaway gap last week which held and a close risk we can use at 81.00 if holds. The 200 DMA is overhead at 85.24 which corresponds with the 65-weekly at 85.35. But a good one to look at holding if gets some momentum in anticipation that those levels can break bringing this to 90.00. Day to Short-term Swing

JCP Inside day still in bullish phase and tight risk to the 50 DMA at 33.15. Negative Pivots at 33.97 and like to see it clear 34.45 Friday's high. Only good for those willing to take the risk and wait to see if can clear 36.00 and retest 2011 high 41.00. Day to Swing

Honorable Mention: Must Now Clear High or R1: NKE (Inside day 98.93 to clear) DLR (67.24)ADSK (32.46) Positive Pivots OR Reversal Candidates: NFLX* BIIB COO

Shorts:

VFC Ended the week exactly where I shorted it earlier on and wound up covering. Also ended with 2 inside days in a row. Should not clear 133.21 and with negative pivots at 132.22, under Friday's low, will anticipate it breaking 131 and dropping to 126. Day to Short-term Swing

RHT Negative Pivots at 42.50 and cannot clear 42.90. Then, could see 39.19 December low and lower.Day to Swing

ANF Negative pivots at 44.93 and must not break 45.82. Could see another leg down to 41.55. Day to Short-term Swing

Honorable Mention: IDCC (Must not clear 42.50) AMZN (Must not clear 179.49)

Happy MLK Day!