Despite Thursday’s bullish accumulation day, the market was unable to muster any follow through on Friday. A brief review of the S&P 500, DJIA, Nasdaq, small-cap Russell 2000 and S&P MidCap 400 should help to shed some light on the current state of affairs in the broad market. The S&P has formidable resistance at 1,370 but also has strong support at 1,350 and 1,340. The DJIA has a key resistance level at 13,015. The Nasdaq is finding 2,965 a difficult threshold to cross as it failed to hold this key mark two of the past four days. The S&P MidCap 400 has struggled with the 990 level. Three times in the past six sessions, the mid-cap index has been unable to rally above this key mark. The Russell 2000 is, in our opinion, showing the best price action of all of the major indices over the past three weeks as it has been building a base during this entire timeframe. If the Russell can clear 833, it should see a significant rally.
Yesterday, the Market Vectors Pharmaceuticals ETF (PPH) reversed sharply off of its 20-day EMA and is now poised to break out of its recent trading range. A volume propelled move above the February 21st high of $37.20 could provide a buy entry trigger for this ETF. We are placing PPH back on the watchlist. Trade details are provided to our members in the watchlist segment of the newsletter.
In early February, the iShares MSCI Emerging Market Index ETF (EEM) rallied above resistance of its long term downtrend line and 200-day MA. Since breaking out, EEM has been consolidating in a tight range above the 200-day MA and now offers two potential long entry alternatives. EEM could offer a buying opportunity on a breakout above the three day high near $44.10 or on a pullback and undercut of its 20-day EMA. We are monitoring this ETF closely for a potential long setup.
Since October of 2011, the ProShares UltraShort Real Estate ETF (SRS) has been in a significant downtrend. However, over the past 2.5 weeks, SRS has been consolidating in a tight range as it has set a sequence of higher lows. Further, SRS has rallied above its 10-day MA and is now poised to break above its 20-day EMA. A volume fueled move above yesterday’s high of $32.41 could provide a buying opportunity in this ETF.
The iShares Dow Jones US Real Estate Index ETF (IYR) has been in pullback mode since setting a swing high on February 3, 2011. A move above Friday’s high of $61.43 could provide a possible buy entry trigger for this ETF.
Yesterday, on above average volume, the iShares MSCI Malaysia Index Fund (EWM) formed a bullish reversal candle. EWM undercut its 20-day EMA but roared back to close near session highs. A volume powered move above Thursday’s high of $14.42 could provide a buying opportunity in this ETF. On pullback entries, we generally look to enter long positions just above big reversal candles.
Yesterday, the S&P Select Sector Technology SPDR ETF (XLK) formed a bearish reversal candle on an increase in volume. Given this price and volume action it appears that XLK may take a rest from the recent rally. A pullback by this ETF into support of its uptrend line and 20-day EMA could provide a potential buying opportunity.
Last week we discussed the key resistance levels on the Nasdaq and the S&P 500. Since then, not much has changed, but given the price discussion that has been occurring between bulls and bears over the past week, it is probably a good time to once again review the state of the broad market. Below are monthly charts of the Nasdaq and S&P 500. Notice that the S&P is now within about 20 points of resistance at the previous swing high. As we stated last week, we anticipate that the current rally could stall when the S&P overcuts 1,370.
Yesterday, on a spike in volume, the ProShares Ultra Dow Jones-AIG Crude Oil ETF (UCO) broke above its recent downtrend line and set a new four day high. A volume assisted move back above yesterday’s high of $42.14 could provide a buying opportunity in this ETF. We’re following UCO closely for a potential entry trigger.
Despite the poor performance put in by equities on Friday, the light volume was the saving grace of the session. Because of the absence of high volume selling, the market did not realize a distribution day. We’ve continually stated lately that as long as the market avoids distribution days and we continue to see buying into weakness, our bullish stance on the market will remain intact. Friday left us no reason to sway from our bullish bias.