As the Sectors Turn $SMH

March 6, 2012

Mish's Daily

By Mish Schneider


One never knows a top is in place until it confirms. So, even though we had the bearish candle in S&P 500 (SPY), followed by the 2 inside days, followed by the break of the range and now, the gap lower, can we safely say this is a top? I’d rather put it this way; as I have been warning about since the Russell 2000 (IWM) broke 81.00, extreme caution on the long side, keep in mind the trend remains bullish and look for the signs that it is safe to jump back in. How do I do that? I watch the continuing saga of “How the Sectors Turn.”

S&P 500 (SPY) When there is a gap down in a bull market, typically, watch for a return move over the high of the gap down day to follow up, a second digestion day followed by a gap higher the third day, or a cash position until the market tests a major moving average (such as the 50 DMA) establishing a support area.

NASDAQ (QQQ) DOJI on this gap making the above strategy possibilities even more compelling in this index.

Russell 2000 (IWM) Getting close to oversold and landed on the 70 EMA and closed just shy of the 50 DMA.

ETFs:

GLD Unconfirmed phase change to distribution. Needs a second close under the 200 DMA to confirm, but will also begin to look oversold.

XLF (Financials) Back looking at 14.39 the last swing low made on February 16th.

IBB (Biotechnology) It broke 118 immediately this morning and gave a great early morning short trade. Now, 115.64 recent low, and getting oversold.

IYT (Transportation) Confirmed weak warning phase.

SMH ChartSMH* (Semiconductors) Held the 50 DMA and closed better than the market. Bingo! In the next “As the Sectors Turn”, episode, we look to semis to lead.

IYR (Real Estate) Fake out after it broke out from a wedge yesterday. Under 59.80 would not touch, but if holds here and begins to turn back over 60.45 area-still a good group to look at.

TBT (Ultrashort Lehman 20+ Year Treasuries) Made my brokerage house happy again. Got out of the long position, but this ETF is always on my list as a potential bottoming one.

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