- sell stop was violated on very heavy volume, just as prior 2% loss was on heavy volume;
- both Friday and Thursday were wide-ranging days with closes around or at the lows of the day;
- 50-day moving average was violated with a close below it (not as important);
- over the past month, volume on down-days was much higher than on up-days, indicating distribution (heavy net selling of shares even as the market rose);
- violation of uptrend line connecting the lows of the rally from the July lows with close beneath it;
- failure to follow through on late December early January breakout to new recent highs.
If you are an aggressive trader, consider shorting the S&P 500 with a buy stop at the midpoint of the recent range. Nearest support is at the 102 area, but as always, don't be surprised by a dramatic one or two day rally with all the pundits saying it's over. Don't believe them; until the market tells you otherwise the trend has changed.
Other trading ideas:
Check out VXX an ETF that allows you to buy the VIX, essentially implied volatility of the stock market. When traders get nervous, VIX tends to surge, often dramatically; when they are complacent, it often falls off. Historically, VIX has traded near the historic annual standard deviation of the stock market, in the low 20% range (meaning that about two-thirds of the time, the stock market's returns have been its mean (about 10%) plus or minus roughly 20%). VXX surged another 8.77% on Friday and would trigger a buy stop at 34.09.
XLF, the Financial Select Sector SPDR, is also a good short bet, with a bull trap in October (failed breakout) and a subsequent failure to attain even those highs, followed by a 3.26% decline on very heavy volume on Friday alone. Populist outrage against the recipients of the bailout billions paying its executives so much should keep a lid on visible profitability for some time. Expect plenty of regulation down the pipeline from Dems and Republicans.
XLK, the Technology Sector SPDR, has also triggered a short sell signal, down 3.5% Friday on very heavy volume.
Hong Kong can be shorted via its ETF, EWH, which presents a textbook case of a triple top, with failure of a thrice-hit 3 month support level at 15.25. Thursday's violation of this support came on heavy volume and was a gap down day and wide-ranging day to boot. Friday saw consistent selling with failure to even approach the bottom of the gap. A short-seller could use the break-down point or the bottom of the gap as buy stops to cover the short position (stops are even more critical to short positions than to long ones since the risk is theoretically limitless).
If you don't like short-selling and are looking for some long opportunities, keep an eye on gold, GLD, although it has been looking weak, it is technically in a buy state after having hit the 20 day high at 112. The sell-off down to near the late December lows and the failure to attain the highs reached in early December, as well as the very heavy selling volume after that high was reached all are bearish signs, but when an asset fails to trigger a sell signal when so many others do in such a weak market, watch closely. If you do go long, sell stop should be at 105.31.
Another interesting sector is healthcare, whose fate is somewhat up in the air following a rally on the prospect of 30 million new mandated paying customers. Nevertheless, it is impressive that the IYH iShares have not hit their 20 day lows so remain in a buy state in such a weak market.
Keep your powder dry and your stops tight. If you have been doing things right, you should have raised a lot of cash (which I personally like to park in short term treasuries through SHY).
