February 5, 2012
By Mish Schneider
On July 7th, S&P 500 made an island top, then after a substantial dump, ran back up to 134.82 on July 21st which was the last gasp before the selloff to 110. I begin with this information since these legendary technical formations are typically what tops are made of. Another one would be an intraday reversal-opening on new highs and then closing near the intraday low. Yet another would be a blow off rally on huge volume. And finally, an orderly repeated test of an area of resistance such as price or a moving average, then a failure from those levels. Relative Strength index is indeed an indicator, but any professional trader will tell you that something overbought can get way more overbought.
S&P 500 (SPY) Ended with a gap up on good but not amazingly good volume and did not clear the July 21st high (Friday's high 134.62) which is the only thing I see that could mean the island top is still there spelling potential trouble. This of course is assuming we do not fill the gap to 134.88 (the low of the island). Then, do not be surprised to see more from SPY.
Russells 2000 (IWM) If opens under the gap low from Friday, could be cause for concern but not necessarily panic since unless it gaps lower and creates an island, digestion would be great for the RSIs
NASDQ (QQQ) 64.00 still a target unless it gaps lower, or makes another new high and then closes really weak.
GLD Been both short and long, and began the year bearish. Under 167.05, the gap low from 2 weeks ago, will look for a new short entry.
XLF (Financials) If this group can digest, then tackle and close above 15.00-will be the first close over the 200 weekly moving average since the week ending October 26, 2007.
XRT (Retail) New closing high and not overbought.
IBB (Biotechnology) WOW
SMH (Semiconductors) Did not have a breakaway gap like so many other sector ETFs did. So, venturing to say keep your eyes on this one as the best indicator if Humpty Dumpty is about to fall.
IYT (Transportation) New high close since mid-July after looking a bit vulnerable. Not overbought.
XLE (Energy) Back looking at 73.17, the high from 10/28/11 and 1/26/12.
TLT (20+ Year Treasury Bonds) Nasty gap lower and now watching to see if holds 115.55 January's low.
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