Stock Market Trading Strategies Tested with Recent Volatility

July 13, 2011

Mish's Daily

By Mish Schneider

SPY came back above the 50 day moving average which is still sloping down, and closed right on the floor trader pivot. There was no distinguishing volume pattern. Early in the day it tried to get through the high from two days ago 133.18 with today's high 133.22 before the afternoon reversal. However, at this point, it is now not only holding the 50 day moving average but also the previous day low at 131.36. If it breaks 131.23,, then anticipate a move back down to 130. Otherwise, back above 132.20 and the trend at least for the time being remains intact.

QQQ opened for two days at 57.94 and then failed attempts at higher levels by the end of the day. Tomorrow, with positive pivots, a move above 57.94 clears the FTP, the opening range level for the last two days, and the 10 day moving average. Would take a break of 57.40 as an indication we will see a move down to the 50 day moving average at 56.90 and a hold above 57.94 as an indication that we will try the resistance at 58.70.

IWM after that interesting hammer candle yesterday, was the only one of the three indexes to have an accumulation day in volume. And unlike both QQQ and SPY, did not make new lows at the end of the day. If it holds today's low 83.22, and gets through the 10 day moving average especially on a closing basis, still has to clear 84.50 but will look like the mid-caps could once again take the lead.

Until the United States Government and the Federal Reserve come to decision and resolution, expect volatility. With so much divergence and nervousness in the market, one either has to stick to daytrading or swing trading with wide parameters and conviction.

Featured ETFS:

GLD new highs. Since it got so close to our target of 155, a conservative stop is now under S1 which comes in tomorrow at 153.55.

UUP got long last week at 21.37 through options. Today it tested the 10 and 50 day moving averages and filled the gap that was left from two days ago. Sold half our long calls on the lower open and will watch 21.34 to hold.

IYR ChartIYR never followed the rest of the market and closed below yesterday's level. Has a bearish engulfing pattern on low volume. If it clears 61.50, especially on a closing basis it will negate the bearish engulfing. Otherwise, the 50 day moving average which is now slightly negative in slope will be the next support.

XRT held the 10 day moving average. Had a DOJI day which makes 54.79 the pivotal area to hold with a move back above 54.96 a good indication of strength.

IBB now must hold today's low 107.88. With a neutral slope on the 50 day moving average, back above 108.50, another good sign of strength.

SMH now has confirmed back into a distribution phase. As I have written many times in the past, until the semiconductors join the party, it is hard to maintain a long-term bullish view in spite of how the weekly and monthly charts look in the indexes. Now, SMH is oversold on the two day RSI. The 50 weekly moving average comes in at 32.24 with a recent swing low in June at 32.15. That is the last area of support that would give this some promise of a turnaround. Otherwise, a test of the 30 area very likely.

XLF the other party pooper. Closed unchanged, but under 14.90 there is that recent support at 14.62. A break of that area and we could see 13.85. Only hope is a move and close back above 15.50 on a weekly basis.

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