The Trader Daily

 | Apr 09, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

msft

,

intc

,

csco

,

exc

,

spy

,

lnkd

,

yelp

,

FB

,

amzn

,

bidu

,

pcln

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ibm

,

gtat

,

fslr

,

corn

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QQQ

,

IWM

After two days of mounting losses, the bulls were desperate for the return of turnaround Tuesday. Lucky for them, their wish came true. How much faith should we place in Tuesday's bounce? Do the bulls have sufficient firepower in reserve to bully the major indices back toward 2014 highs? Or are we witnessing the beginning of a sell-the-rip stock market?

As for Tuesday's rally, I can't say I'm a believer. The aggressive buying in the CME-traded Yen contract, 10 year T-notes and 30-Year bonds left me uneasy throughout the session. Add to that the fact that utilities and select REITs were some of Tuesday's market leaders, and I just can't bring myself to buy a ticket on the bull train.

We did see a number of beaten-up momentum favorites bounce on Tuesday. Stocks like Yelp (YELP), LinkedIn (LNKD), FaceBook (FB), Amazon (AMZN), Bidu (BIDU) and PriceLine (PCLN) all found buyers. Unfortunately for them, not a single one of the aforementioned names managed to close above their five-day exponential moving average. Failing to close above the five-day EMA doesn't portend horrible things to come, but after a decent rally, it does speak to how hard these names had been sold.

Aside from the strength in a handful of consumer durables (discussed Tuesday) and the utilities, what else is holding up in this squishy tape?

Buyers continue to find value in old tech. Names like Microsoft (MSFT), Intel (INTC), Cisco (CSCO) and IBM (IBM) are holding up great as traders rush in to buy anything with a respectable yield, and moderately predictable earnings (even if the growth is questionable at best). Away from old cap tech, we're seeing bullish consolidation in stocks like GT Advanced Technologies (GTAT) and First Solar (FSLR), and a clean breakout in the Teucrium Corn Fund (CORN). The bottom line is that while bullish action can be found, it's not quite as easy to find as it was just a few weeks ago.

I'm including an updated view of our four major market ETFs to highlight the short-term bullish RSI divergence that now exists in the PowerShares QQQ Trust (QQQ) and iShares Russell 2000 (IWM). The SPDR S&P 500 ETF (SPY) and SPDR Dow Jones Industrial Average (DIA) are still in multi-week balance, so no such divergence exists in those markets. As for the QQQ and IWM, I suspect some degree of upwards sloping, or sideways trading toward each ETFs respective ten-day and thirteen-day EMA is now likely. I continue to believe the higher timeframe participant should view any sort of meaningful rally as a selling opportunity.

Daily Chart of Major Indices
eSignal

I trust everyone is aware by now of the persistent strength in the utilities sector. The strength can be seen in shares of the iShares Utilities Sector SPDR ETF (XLU), NextEra Energy (NEE), Exelon Corp (EXC) or any of a dozen other stocks in the utilities sector. The bottom line is that the utilities are on fire.

I've included a ratio chart of the XLU to SPY to highlight how dramatic the out performance has been. However, to better understand the implications that such out performance might have, I'd encourage you to read The Market Technicians Association 2014 Charles H. Dow Award Winning Paper, An Intermarket Approach to Beta Rotation. The paper was written by Charles V. Bilello CMT and Michael A. Gayed, CFA, and can be accessed via the MTA website at http://docs.mta.org/dow-award/2014-bilello-gayed.pdf . As Michael reminded me on Tuesday, "utilities are not supposed to lead stocks when they act most like bonds." 

Daily XLU-SPY Ratio
eSignal

Let's move away from the perceived safety of utilities, and over to the gold market. Gold has been inching its way higher for five sessions now, but the gains are pretty small. Despite maintaining my intermediate-term bullish bent to both metals and miners, I still believe gold needs to shake the tree a bit harder and force the hands of a few more bulls. As far as the gold contract is concerned, I'm still looking for a dip toward $1264, followed by a quick recovery back above $1280. 

Daily Chart Gold Futures
eSignal

Those familiar with my volume profile work might have spotted Tuesday's p-shaped pattern in the SPY. Traditionally, this sort of pattern is indicative of short covering. Whether or not this is the case, I'd advise short term traders to focus in on $186.30 to $186.55 in the event that Tuesday's strength bleeds into Wednesday's session. In my view, that's the area the bulls are most likely to encounter a more aggressive seller. Any shift in value beneath $184.05 places a heavy offer over the SPY, and encourages short term traders to hammer the ETF toward $183.06.

5-Minute Volume Profile SPY
eSignal

 Any trading or volume profile 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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