Wednesday April 28, 2010 (SPY @ 118.48)
The market is looking very vulnerable here. The S&P 500 (I use the S&P 500 Depository Receipts (SPY @ 118.48)) while technically still in a buy state according to the 20 day high-low system, is doing some very bearish things:
- after a long, extended rally with few pullbacks or consolidations from a low of 104 only 2 months ago, the market surged to 122, a 17% gain, then crossed its uptrend line on heavy volume in mid April.
- it then rallied and even broke out to a new relative high but saw no follow-through and sold off sharply (-2.37%) yesterday on very heavy volume - in fact, if you look at a chart of April volume, you will see two spikes of double-average volume on the two heaviest down days, a sure sign of distribution.
- it closed at its lows yesterday;
- its low and close were both below the lows of the prior pullbacks as well as below the middle of the 20-day range.
Fundamentals are bearish with Greece threatening Euro land and the SEC and Congress intent on not letting the financial companies make off with the taxpayers' money (recent corporate profits at major financial firms were almost exactly equal to the taxpayer bailout... hmmm).
But to leverage this anticipated down leg, other markets and sectors might offer better shorting opportunities:
Proshares Ultrashort China surged 6.98% to 41.68 at the close yesterday, triggering a 20-day buy signal. As the name implies, this is a very volatile ETF that moves inversely to the Chinese stock market, but is certainly worth a look. The 20 day low is at 34.85 but a closer stop could be placed toward the lower end of the consolidation area following the gap up in mid-April (around 38).
Russell 2000 Value iShares remain in a buy state with a sell stop at 63.78.
Financials (XLF @ 15.96) are getting crushed as they should. They went parabolic from 13.5 in February to over 17 just 2 weeks ago, so were due for a pullback. Nothing much has changed at these firms; they remain highly cyclical with horrible balance sheets and an SEC with teeth looks like it's not going to let them take the taxpayers' money and run. They broke down across a trendline on very heavy volume in mid-April, tried to rally back could not attain their old highs, thereby forming a lower high then collapsed yesterday, closing down 3.38% on very heavy volume. A good shorting opportunity presents itself, but expect lots of up and down volatility here. Sell stop is at 15.81.
Technology (XLK @ 23.58) sold off with the rest of the market, but is looking relatively stronger than financials. It is still holding above the midpoint of its 20 day channel. Down volume yesterday was over twice average and higher than it has been since January. Lots of distribution going on. Sell stop at 22.90.
Consumer Staples (XLP @ 27.48) is a beautiful short gapping down across the 27.76 20-day low. Down volume is not as impressive as technology's and the 1.75% decline was a bit better than the overall market, but a sell signal is a sell signal.
Healthcare (XLV @ 30.66) continues to sell off after issuing a sell signal at around 31.75 2 weeks ago. Some very bearish aspects of this chart include a climax top (surge to new parabolic highs on heavy volume with failure and collapse) in place just above 33 from January, followed by a failure to attain that high in March (failing at around 32.7), then a sell-off since then. Buy stop is at 32.42.
Gold (GLD @ 114.63) confirmed its breakout in early April, when it triggered a buy signal at 111 and change. It's been somewhat choppy and would really have to clear the climax top (with an island gap no less) at 120 which will still pose powerful resistance, but a run to that level at least looks highly possible. Sell stop at 107.87 or traders could use the bottom of the recent cup at around 110.
Natural Gas (UNG @ 7.54) is interesting only because it has been so badly beaten up and is starting to show some signs that a bottom is in place. First, following a long, steep decline from 11 to below 7, an almost 40% decline (the 20 day would have had you short from about 9.75, making for a nice profitable trade), UNG failed to make a new low despite two major attempts in early and late April. In the meantime, it did something it had not done since February, rising to the midpoint of its trading range. Then it challenged its most recent high and now is on the verge of triggering a buy signal at 7.68. Sell stop would be at 6.82.
Germany (EWG @ 21.30) got clobbered with the rest of Europe over Greek woes yesterday. The 20 day would have gotten you out at 21.54, locking in a small profit from the trade triggered just above 21.
Hong Kong is also bearish, and Malaysia and Singapore are questionable. Latin America (ILF at 46.66) issued a sell signal.
If you want to short this market in a retirement account, look again at DOG at 48.88, although it has not yet issued a buy signal - the 20 day is at 49.73.
