Trading Strategies for Indexes and Key ETFs

June 13, 2011

Mish's Daily

By Mish Schneider

We had better than average volume today, which considering SPY was marginally up, could be perceived as a good sign. But let's not confuse this with an Accumulation day in volume.

QQQ closed unchanged with light volume. And of course the whole world watched as it tested and held the 200 day moving average of 54.47. To reiterate the importance of the 200 day moving average, first let's say that it is sloping upward which means the longer-term trend is still positive. Second, you would need two closes beneath the 200 day moving average in order for us to confirm the next phase after warning which is called Distribution phase. Third, it is very likely that we could see a move down to the spike low made on March 16 at 53.77 and then proceed to turn back up above the 200 day moving average.

IWM still has a bit of a ways to go to test  its 200 day moving average.

All of the indexes except for DIA are still in oversold territory on the short term indicators. At this point, I would be less concerned on whether or not QQQ break the 200 day moving average and more concerned with how the other indexes act considering they held up better.
The US dollar weakened today although the Euro has resistance around 1.44  to 1.45. Last week's decline seemed to follow the strengthening of the dollar. Now, the Euro below 1.42 could bring more pressure into the market whereas above 1.45 an easing of the pressure.

ETF's: XRT had an inside day. There is a tremendous amount of resistance overhead so I wouldn't get too excited about a big rally in the retail sector. Note that the slope on the 50 day moving average is slightly down which means if we cannot get above today's high, rather than wait for more rally, we will probably see it begin to roll over and breakdown further.

IBB ChartIBB** is at a critical point. The slope of the 50 day moving average is still pointing up, the 2 day RSI is oversold, it broke beneath the exponential moving average today, and the 10 is resting and threatening to cross beneath the 50 day moving average. If you put that all together, it looks like any firming tomorrow and I would still prefer to go to this sector and group before most others for buying opportunities. However, if we see further deterioration, then most likely the slope of the 50 will neutralize, the 10 will cross beneath the 50, and we will be looking at an old gap left from March 29th to be filled.

SMH is oversold and similar to the chart pattern of the indexes, has a bit of a way to go down to the 200 day moving average.

XLF is another reason we saw the market hold up today. If it can continue  bouncing from the lows, then I would anticipate a move first to 15.45 and then possibly back to retrace to the 200 day moving average. That would at the very least, give us an opportunity to catch some momentum to the upside, but certainly does not mean that more than a temporary bottom is in place. Plus, it now needs to hold today's low.

Last week I covered my short in IYR. The slope on that is still neutral and the recent move down at this point, was not enough to get it to test its last swing low on April 14th which corresponds perfectly with the  exponential moving average. Today was a DOJI day, so will be watching very carefully to see what happens around today’s closing price.

As expected OIH and XLE were the weaker sectors. SLV closed down nearly 4%.

In summary, to keep the market stable, energy, the metals and the financials cannot breakdown further. But at this point, those areas are looking oversold therefore I wouldn't be shorting any of those sectors even if they do breakdown further but rather would look to the ones that have been holding up better such as biotechnology, retail, and real estate for the better short opportunities as those areas are not oversold.

And, if the market continues to firm, there should be opportunities not only in the sectors and groups that have been holding up, but in the commodities as well since they are indeed looking oversold.

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