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Option expiration and earnings news were the lead act in the game last week, and the results were ugly at best. The Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) lost close to 5.0% on the week as techs were punished. Same song as stocks were bid up in advance because they thought companies would beat estimates, and some did, but that was only after estimates had been lowered 10 times prior to being able to beat it. Oh, I forgot to tell you, revenues were off 50% and backlog is nonexistent, etc. I guess they will have to bring back the Texas Instruments CEO (TXN | Quote | Chart | News | PowerRating) to give us the "we've seen the bottom" speech that everyone jumped all over two weeks ago.
When the averages were at key resistance, the "trend is your friend" gang was front and center, and CNBC paraded a line of bulls that probably sucked in more unsuspecting retail once again at the wrong entry point. The point is stay the hell away from all of the noise, and do your own work.
One of my New Year's wishes is that all of the files that have been lost by Hillary, Billy boy, the FBI, Enron, etc., are found. Simply amazing, isn't it?
Starting the week, the major indices are trading below all of their EMAs, and other than the five-day put/call ratio, I see no significant oversold condition yet. The basic industries, led by the chemicals, were leaders on the downside last week, followed by technology. The semis caught the air pocket and the flip side of the tape played as the defensive stocks were up on the week. Some financials were green at week's end, but not the brokers which have been very strong recently and are still above both their 10-week and 30-week moving averages, as are the ($BKX.X | Quote | Chart | News | PowerRating) and ($RLX.X | Quote | Chart | News | PowerRating). The best of the major market indices has been the IJR, which is the Small Stock 600 index.
The SPX ($SPX.X | Quote | Chart | News | PowerRating), NDX ($NDX.X | Quote | Chart | News | PowerRating) and ($DJX.X | Quote | Chart | News | PowerRating) are seven to eight days down from their recent swing-point highs, so I would expect a reflex back to at least the moving averages, if not more. The NDX could catch some room reversing the 1557.18 low of Dec. 20. The NDX closed at 1548.22. I would use that as your pivot point today. The DJX has to come out of the narrow-range 3 pattern above 98.31 to give you any upside. The SPX above 1129.10 puts it in an intraday uptrend above the moving averages. See your five-minute chart.
For your trading plan, make sure you outline the high and low points of the major indices, starting with Friday's high and low and then the weekly high and low. Check your longer-term moving averages for recross levels and/or shorts into these moving averages. See if there are any Fib levels that come into play. Note where both the 200-day EMA is along with the 200-day SMA as both often come into play. Watch the intraday action as price approaches these moving averages and look for setups. Check your weekly charts for the 10-week and 30-week moving averages, both SMA and EMA. I also look at the monthly charts with the 12-month EMA/SMA. For example, the SPX has retraced a perfect 1 2 3 4 sell pattern to the 12-month EMA, so you certainly know where more downside starts.
A couple of points that I must mention are that 1) Bollinger Bands are not even close to being volatility bands; 2) ADX is a lagging trend indicator, and to get above 30, it must have been a strong directional move. There are many pullbacks to the 20-day moving average or the first pullback to the 200-day moving average that very often will have an ADX less than 25, or even 20. So, don't limit your search when you are screening for trades. When you screen for potential breakouts from consolidations, ascending and descending triangles, or daily chart Slim Jims, etc., you will most often see ADX below 25 or below 20. When the ADX gets above 30, there's a very strong trend, and hopefully you will have spotted it before then. You want all of those setups in a strong trend, but position trades are better taken lower on the trading tree, and that usually means a lower ADX starting out.
Stocks Today
Setups today are very thin, but some that do set up on the daily charts are (FITB | Quote | Chart | News | PowerRating), (LOW | Quote | Chart | News | PowerRating), (BBY | Quote | Chart | News | PowerRating), (ELBO | Quote | Chart | News | PowerRating), (YUM | Quote | Chart | News | PowerRating), (EMLX | Quote | Chart | News | PowerRating), (NETA | Quote | Chart | News | PowerRating), (FDC | Quote | Chart | News | PowerRating), (NSC | Quote | Chart | News | PowerRating), (NVDA | Quote | Chart | News | PowerRating), (GNSS | Quote | Chart | News | PowerRating), (ISSX | Quote | Chart | News | PowerRating), (HOTT | Quote | Chart | News | PowerRating), (KRON | Quote | Chart | News | PowerRating) and (WLP | Quote | Chart | News | PowerRating).
On the (BBH | Quote | Chart | News | PowerRating)s, I don't care until they get down to the 116-117 level.
And also, on the shortside, because of where we are, I'd stay with the proxies in all the major indices.
Have a good trading day.
Five-minute chart of Friday's SPX with 8-, 20-, 60- and 260-period EMAs
Five-minute chart of Friday's NYSE TICKS
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Additional resources from Kevin Haggerty:
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