Evening Watch List for June 8th, 2011

Mish Schneider | June 7, 2011

Today the market rallied initially in anticipation of some positive news coming out of the Federal Reserve. Instead, the news was sobering with no talk of any quantitative easing. Typically I avoid expressing opinions about news related items, but at this point I feel compelled to say that Fed intervention ultimately would not be a good thing and I would rather see the market run its course and find support on its own volition. With that said, SPY almost had an inside day taking out yesterday's low by a couple of ticks and then recovering somewhat after the markets closed. The volume was insignificant as far as a distribution day however, the warnings phase has gathered some momentum with a negative slope now on the 50 day moving average. Looking at SDS, that did have an inside day which means a move over 21.97 and it looks like the action from the middle of March could be a base. The proper risk is the low from yesterday 21.47 which is about one ATR.

QQQ still has resistance at yesterdays hi 56.53 to contend with should we get a rally. And it's ultrashort doesn't look as basing as SDS nor is it as good a trader. But, the warning phase is accelerating in all of the market indexes although all are also oversold on the 2 day RSI which means we need a rally for a better management of risk on the short side.

DIA has a bearish engulfing pattern today although it too is oversold.

IWM** actually worked off some of its oversold condition and posted an inside day. Therefore, this will be my primary focus tomorrow. I don't know if I would necessarily short since the 160 day exponential moving average is close by at 78.94, but I would consider buying TWM and watch to see what happens if it can fill the gap up to 47.12 as featured on today's video.

ETF's: several had inside days today. Most interesting are the oil and energy related ones. XLE looks like it can fail further from here with the least a move down to the May 17 low at 72.28. A move under 73.40, yesterday's low, should bring in more selling again, but it is oversold on the short-term RSI indicator. OIH** may be the better one to go to since it is not oversold. The slope on the 50 day moving average has accelerated down and although the price is close to some support at 145.30 where the 160 day exponential moving average is, at this point if it breaks down further, we could see a move to 135. EWC also beginning to look toppy. Had an inside day as well with the 200 day moving average underneath that 30.82.

EWZ** might be the best of the bunch to short since it has broken beneath all moving averages and with any more weakness, could be heading towards a death cross. You have good risk management using the 10 day moving average at 73.68 should that fail under yesterday's low 72.78. Best underlying support is at 70 based on the lows that were made in February.

IYR** the recommended short yesterday, held up well but could not get through the 10 day moving average at 61.09. If it fails the 50 again at 60.47 would take another shot at looking at the short side and if it fails 60, next area support is down at 58. In fact, the more I think about it, the more interested I am in watching this one as the main focus for a short position since today's rally does seem to be a gift.

Typically commodities will rally when the dollar is weak. Now, although FXE has gained a lot of strength over the last several weeks, except for gold, commodities have been struggling. I wouldn't be surprised to see some correction in FXE especially if it cannot get above 146.53. If that is the case, would look for a correction down to 143.30 where the 50 day moving average is.

Picks: There are a lot of inside days to look at. There are also some big after market movers. When the market gaps up or down, make sure that you narrow your focus to a couple longs and a couple of shorts with the best risk reward potential.

VHC**after two days under the floor trader pivot after making new all time highs last week at 30.50 today it had an inside day. At one point this was up 6.7% which kept me from chasing it as the risk was uncontrollable. Ultimately, it settled up 3.4%. Clearly, the moving averages are stacked and sloped which is a good sign. 26.89 is tomorrow's  FTP. If it opens above that can use a conservative risk to under today's low 26.22 otherwise, the 10 day moving average at 25.41.  Day to swing.

CRM now has three days under the floor trader pivot which comes in tomorrow at 142.28. Since it is beginning to look oversold and we still have upward sloping 50 and 200 day moving averages, with any firmness in the market this could see a decent rally possibly up to 10 day moving average at 148.25. Plus, if you buy above the FTP with an opening range confirmation, could use today's low 140.91 as a risk. It also needs clear R1 at 143.65 with today's high 143.78. Day trade and possibly mini swing if the market firms.

PTEN closed up on the day but could neither clear R1 or the 10 day moving average at 30.47. Now, using the FTP as a risk at 30.03, if it clears 30.56 it takes out both R1 and 10 day moving average. Looking for a move up to 32.50. day to mini

NFLX**had an inside day +2 days under the floor trader pivot. The FTP comes in tomorrow at 263.91 and yesterday's low was 260.61 an excellent risk. The 10 day moving average comes in a 264.51 now a pivotal area and R1 comes in at 267.05 a first good target. If the market is weak and this breaks 260.61, wouldn't be surprising to see a quick drop down to the old high at 254.98. Day trade.

ZMH**this has come off hard since making new highs on May 11 at 69.93. Today it tested and held the 50 day moving average at 64.57. Today's low was 64.46. Looks oversold and with a clear risk using today's low, can buy over the FTP which comes in at 64.80. There are six days under the FTP right now so it must also clear R1 at 65.15. If it gaps higher can use the FTP as a tighter risk. First Target is the 10 day moving average at 66.75 so would not chase. Day and possibly mini if market firms.

SLB since the beginning of May this held the 160 day exponential moving average and today had an inside day. Also had two days under the FTP which comes in tomorrow at 83.44 giving a very decent risk to today's low 82.84 with the exponential moving average down at 82.19. Keep in mind that this could also be setting up for a short if it breaks its recent consolidation and the exponential moving average. If that is the case, we have some support at the 200 day moving average 78.94 but we could easily see a drop down to the 50 weekly moving average 76.18. I'm putting this on the recommended long list rather than the short list however because of how well it's held up over the last couple of weeks. And if this can get through the 50 day moving average at 86.65 we could see a good rally. This is really an either/or expecting momentum on which ever way it breaks.

JOYG has a similar looking formation to SLB only if this clears 91.90, although we do have resistance at the 50 day moving average at 93.60, we could be looking at a potential base which will override the possible double top up near 103. Again, if it breaks beneath the exponential moving average at 86.39, I would change my bias to short but there is one major difference between this chart and the chart of SLB. When it gapped higher back in December, it has yet to fill that gap which coincides perfectly now with the 200 day moving average at 83.45. Day to mini.

CNX**putting this on the list because so far this week it held the 200 weekly moving average at 48.92 giving it a clear risk after an inside day today and five days under the floor trader pivot. The FTP is at 49.48, less than a half an ATR away from the risk. There is a trendline coming down from May 31 high which crosses right at the 50 day moving average at 50.50 so in order to keep us in this position, we must get and close above that area. Then it is possible we could see a move up to around 53. With so much vulnerability in the market, I would most likely not risk more than the 200 day moving average which corresponds with this week's low 48.89. Day to mini


CMI**resting right on the 200 day moving average and tried to get above the 160 exponential moving average but could not. 101.37 is the FTP which if it opens beneath would be a good point of risk. On the weekly chart the first target is the 50 weekly moving average at 97.30. This is not oversold, but if it happens to come in above 102.30, I wouldn't necessarily go long, but I would wait for a better short set up. Day to mini

PRU if this rallies to 60.54, then you have a good manageable risk to go short in anticipation of it breaking beneath the 200 day moving average at 58.81. If it breaks the 200 day moving average I would sell it looking for a more reasonable intraday point of risk. Had an inside day today. Another area to watch for is the FTP which it has now closed beneath for three days. That comes in 59.78 so can use that on a weaker opening as the point of resistance as well. Day to mini.

WLT resting on the exponential moving average at 116.96. Had an inside day today. Overhead resistance at 120.42. I would not short if it comes in higher than 120.42, but if it breaks 116.96 we could see a quick drop down to the 200 day moving average 111.31. Plus, if the market is indeed heading towards a big selloff then a move under the 200 day moving average puts in a pretty significant top. Day to swing

PNC now that this has rallied, it worked off oversold conditions. Yesterday tested but held the 200 day moving average. Now it has overhead resistance at 60.68. Ultimately, a break of 58.23 the Spike low from yesterday, will be a compelling argument for a dramatic move to the downside, particularly in the financial area of the market which already has been weak. If that is the case, we are looking at least a move down to 50 for next support. Day to swing

MGA had a death cross a couple of days ago and is trading beneath the 50 weekly moving average at 47.09 with good overhead resistance at the 10 day moving average 47.45. Had an inside day so can sell beneath recent low 45.61. Ever since it gapped lower on February 24, it has been unable to fill that gap. Underlying support 43.79 with better support at 40. Day to swing.