The Trader Daily

 | Apr 21, 2014 | 7:00 AM EDT
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Despite weakness in shares of IBM (IBM) and Google (GOOGL), buyers remained relatively active in SPDR S&P 500 (SPY), PowerShares QQQ (QQQ) and iShares Russell 2000 (IWM). The SPDR Dow Jones Industrial Average (DIA), with its heavy reliance on market-cap giant IBM, was the standout loser of the group.  

The weekly SPY chart below shows an ETF that lacks bullish momentum, but it's still a far cry from being labeled bearish on anything other than an extremely short time frame. Higher-time-frame participants will no doubt continue to complain about the weakening moving-average convergence-divergence (MACD) line and negative divergence in the relative strength index (RSI). However, only a trade back down through the early-February swing lows would force these folks into a position of selling. Remember, while indicators give us a reason to pay closer attention, only price pushes us into action. 

SPY -- Weekly
Source: eSignal

The most important takeaway from the SPY's daily chart is that the ETF is back inside its $184 -- $189 balance zone and, for the time being, it's holding above the 50-day simple moving average. In my view, a bullish posture makes sense, with an eye toward $189, as long as the ETF is closing above its 50-day moving average.

SPY -- Daily
Source: eSignal

In preparation for Monday's session, let's begin by labeling the $185-to-$185.15 area on the SPY as our near-term line in the sand. There is obvious price support at that level from April 16 (shaded in red on the chart below), and the 50-day moving average is current sitting at $185.22 (highlighted in purple on the daily SPY chart above). Given this, I believe the higher-time-frame swing trader should be focused on that $0.15 range as a trigger for both short sales and stop losses on existing long positions in the index.

Day-time-frame traders will want to begin Monday's session by focusing on $186 and $187.15. With $186.50 -- $186.55 acting as an intra-session pivot on the SPY, all trading above that area would target $187.15, while everything beneath it would shine a light on $186. A break of $186 would begin to awaken our bear, and anything beneath $185.55 would encourage bearish participants to press their bets toward $185.15.

An increased level of volatility is to be expected with next week's onslaught of earnings reports. Keeping this in mind, I'd suggest day-time-frame traders maintain a long bias above $186 -- and a moderately bearish one would seem appropriate beneath that level.

SPY -- 5-Minute Volume Profile
Source: eSignal

Additional Notes:

1. The strongest sectors continue to be utilities, energy, staples, industrials and select materials stocks: Utilities SPDR (XLU), Energy SPDR (XLE), Consumer Staples SPDR (XLP), Industrial SPDR (XLI) and Materials SPDR (XLB). In the utilities and energy groups, nearly everything is roaring higher, but the other sectors are benefiting from stock-specific leadership. For example, the XLP is being pushed higher by such stocks as Coca-Cola (KO), Pepsico (PEP) and Procter & Gamble (PG). XLI, meanwhile, is benefiting from strength in General Electric (GE), Union Pacific (UNP) and Emerson (EMR).

2. Utilities is the one sector where broad-market bulls don't want to see continued buying. A daily close beneath $41.50 would put the XLU on my bearish (short-sell) watch list.

3. The weakest sectors -- and the ones I'll go to first for short-sale ideas if the SPY loses its 50-day moving average -- are homebuilders, biotech and financials. The ETF equivalents here are iShares Dow Jones U.S. Home Construction (ITB), iShares Nasdaq Biotechnology Index (IBB) and Financial SPDR (XLF).

Any trading or volume-profile-related questions can be posted in the comments section below, emailed to me at or posted to my Twitter feed @ByrneRWS.

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