We've been discussing the bearish developments in the Nasdaq (QQQ) and Russell 2000 (IWM) for the past two weeks. Now, in addition to the crystal-clear short-term downtrends in those two indices, the S&P 500 (SPY) and DJIA (DIA) have broken down through the bottom of their previous balance zones and are headed lower. The bottom line is that the selling once confined to biotech and momentum favorites, has finally migrated into a number of other S&P sectors.
I hope everyone had a restful weekend, because I expect the coming holiday-shortened trading week to test the patience, discipline and emotional fortitude of both short and longer term participants. As many of you are no doubt already aware, the last two weeks of April are historically bullish. May 1 ushers in the weakest six months of each trading year. And there are a growing number of big name stocks breaking down on both daily and weekly timeframes. My guess is that any one-week to two-week bounce will represent a favorable opportunity to right-size (read: sell) the weaker names from one's trading and investment book.
As you review the daily charts of the four major indices, it's worth noting that the SPY and DIA have finally joined the QQQ and IWM in the short-term downtrend camp. Keeping in mind that I still want to avoid selling short anything in the hole (on weakness). Therefore, I believe even the most fervent bull should recognize that all four ETFs now represent favorable short-sale candidates on bounces toward their 13-day and 20 day moving averages. Several consecutive closes above each ETFs 50-day moving average will be required to attract the attention of our now petrified momentum buyer.
Monday's primary area of interest on the SPY is expected to be $182.40. Setting aside that I believe a weak opening will be needed to attract a more aggressive dip buyer to the auction, I'll be looking for any strength above $182.40 to kick-start a more meaningful rally toward $183.80 to $183.95. Please note that any aggressive selling at Monday's opening has only minor support until $179.65.
I want to highlight the daily and weekly charts of the Consumer Staples Select Sector SPDR ETF (XLP) because I believe that ETF is offering a low-risk short selling opportunity. The bottom line is that I am looking for a selling opportunity on any bounce toward $43, with a weekly close above $43.33 (which would be an all-time high on a weekly closing basis) acting as my stop-loss trigger. A daily close above $43.65 could serve as an intra-week stop-loss trigger.
We've discussed the iShares Nasdaq Biotechnology ETF (IBB) on several occasions over the past two weeks, and with the ETF finally approaching $213 to $214, it'll be at the top of my list as a candidate for any intra-week bounce buy. If you're stalking the IBB for a long, please don't lose sight of the fact that both the daily and weekly charts are now broken. Any bounce toward %240 will likely find me lurking on the offer side of the market.
After receiving several requests for a read on Visa (V) and MasterCard (MA) I figured I'd share the weekly charts of both names. The bottom line is this: Both stocks are trading beneath their respective 40- week simple moving averages for the first time in nearly three years. Adding insult to injury is the fact that the RSI is also trading at multi-year lows.
Does this mean the stocks are headed 50% lower? No, absolutely not. What it does mean is that the short term trader in me would rather stalk these names on the short side on any one or two week broad market bounce.
Goldman Sachs (GS) is another name we've discussed several times over the past week. I didn't like the stock as it traded through $160, and I don't like now as it trades into the low-$150s (though I would not be selling it short in the hole at $153). I have no doubt a bullish book value or fundamental case can be made for the name, but from a technical trading standpoint, I'd view any strong bounce from $150 as a short selling opportunity.
JP Morgan Chase (JPM) reported earning on Friday, and despite being one of the world's leading names in banking, I'd avoid this name on the long side. Not only has the weekly RSI been deteriorating for months, but having finally closed beneath the 40-week simple moving average, my guess is sellers are going to hammer the stock down toward $50.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my twitter feed @ByrneRWS