The Trader Daily

 | Apr 07, 2014 | 7:40 AM EDT  | Comments
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Stock quotes in this article:

spy

,

QQQ

,

IWM

,

DIA

,

XLU

,

IBB

There's no way to describe Friday's market action other than ugly. Our four major market ETFs, SPY, QQQ, IWM and DIA gapped higher to begin the session, then finished near their respective lows of the day. The bottom line is that aside from some utilities and a handful of basic materials names, nearly every sector of the market was taken out back and shot.

We've devoted a significant amount of time over the past couple weeks to discussing the developing (short term) downtrend in the Powershares QQQ Trust (QQQ), the choppy and moderately negative trend developing in the IWM, and the balanced condition that continues to exist within the SPDR Dow Jones Industrial Average (DIA) and SPDR S&P ETF (SPY). And while Friday's slide in the QQQ and iShares Russell 200 (IWM), have further weakened those markets, it's important to recognize that the SPY and DIA were simply rejected as they attempted to push higher, through the top side of their balanced ranges. Simply put, for as ugly as the Friday's trading was in the SPY and DIA, we still lack sufficient evidence to label those ETFs as bearish.

As you study the daily and weekly chart of the SPY below, pay particularly close attention to the fact that the SPY was testing above balance highs at Friday's open. Rather than blaming the bearish reversal in the SPY on persistent weakness in the QQQ and IWM, let's recognize that Friday's failed breakout is likely to result in a test of the other side of balance. In the case of the SPY, we're talking about a near-term drop toward 183.75 - 184.

Daily and Weekly SPY
eSignal

The weakness in biotech and momentum tech has been discussed ad nauseum for the past two-plus weeks. But what about the out-performance in bonds relative the stocks? This is something I still don't hear all that much discussion about.

Take a look at the trio of TLT:SPY ratio charts below. You'll notice that while bonds under-performed stock during 2012, they did so in a very choppy manner. This changed during 2013, when stocks trounced bonds. Fast forward to the end of the first quarter of 2014, and I hear far more traders discussing the out-performance of the SPY relative to the QQQ and high-tech momentum favorites, then I do the massive out-performance of the TLT relative to the SPY.

I could easily have substituted the Utilities Select Sector SPDR ETF (XLU) for the TLT, but given the recent focus on selling short the bond market, I thought it might be beneficial for some to see specifically how bonds had fared in relation to stocks.

Daily Bond-Stodcks Ratio
eSignal

After Friday's bearish reversal, the first thing I expect intraday traders to be scouting for is downside continuation. Remember, with the SPY having been rejected from the top end of its multi week balance, our baseline expectation is that it will now make its way toward the other side of balance.

With this in mind, a sustained break of $186.14 will have me targeting an immediate test of $185.35 to $185.50. Continued pressure beneath $185.35 selling puts $184.75 and $184 on the table. Please note that in addition to $183.75 to $184 representing the bottom of balance, the 50-day simple moving average is located just beneath $184. The bottom line is that both bulls and bears will be watching the $184 area with great interest.

3-Minute Volume Profile Es
eSignal

The increased volatility in the IWM has put it at the top of my intraday trading list. As you review the notes on the chart below, please note that any downside continuation beneath $113.88 to $114.03 shines a light on $113 and $112.15. As far as rebound is concerned, any bounce back toward $115.90 -- $116.15 would be expected to pull sellers back into the auction.

3-Minute Volume Profile IWM
eSignal

Of our four major market ETFs, the QQQ is the weakest. Unless the QQQ recaptures $87.15 - $87.25, it remains at risk of continued aggressive selling. That said, even if buyers return and the ETF manages to recapture $87.25, I fear it will simply bounce around until the 10-day and 13-day exponential moving averages move lower and force the ETF lower. In my view, the QQQ appears destined to test $83.5 to $84.

3-Minute Volume Profile QQQ
eSignal

Given the number of questions I've received regarding the iShares NASDAQ Biotechnology ETF (IBB), I thought we'd take another look at this struggling ETF. With the benefit of hindsight, it's simple to spot the waning momentum on both the daily and weekly chart. But with the ETF already in the gutter, what can we do now?

In my view, IBB bulls should be focused on the $213 -- $214 level ($213.70 if you want a specific level). Even a charting tourist can spot the numerous tops that exists in that area. And with a potentially bullish divergence in the RSI (daily chart), and the obviously oversold condition in the weekly stochastics, I believe it's reasonable to look for stabilization and a bounce after a flush through the 200-day simple moving average (daily chart). With a little luck, a few buying tails, doji candles, and a higher low in the RSI will accompany a test of $213 to $214.

Daily & Weekly IBB
eSignal

Any trading or volume pofile related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS

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