Yesterday, on well above average volume, the Retail HOLDRS ETF (RTH) undercut its 20-day EMA, and rallied to form a reversal candle as it closed near session highs. The high of today’s reversal candle could serve as a buy entry trigger for this ETF. Ideally, we would like to see RTH consolidate for a few days in a tight range before attempting a move higher. We are monitoring this ETF carefully for a possible buy entry.
After undercutting and closing below support of the 20-day EMA on Thursday, the ProShares Ultra Dow Jones-AIG Crude Oil ETF (UCO) reversed and closed higher on Friday, on an increase in volume. UCO is now poised for a potential move higher. A move above the December 8th high of $42.40 could provide a long entry trigger for this ETF. We are placing UCO on the watchlist. Trade details are available to our subscribers in the watchlist section of the newsletter.
Yesterday, on an increase in volume, the iShares MSCI Mexico Investable Market ETF (EWW) gapped down and sold off to close at session lows. EWW is now testing support of its 20-day EMA. A move below yesterday’s low of $54.18 could present a short entry trigger for this ETF. The S&P Select Consumer Staples SPDR ETF (XLP) sold off yesterday on declining volume, and is now testing support of the November 30th low ($31.62). XLP has been one of the strongest ETFs in the market and a pullback to the 20-day EMA could provide a buy entry for this ETF.
The iShares Dow Jones Select Dividend Index (DVY) formed a reversal candle yesterday as it sold off sharply, tested the lows of the trading range, but ultimately recovered to close near session highs. A volume powered move back above the three day high of $53.17 could present a buying opportunity in this ETF. We are placing DVY on the watchlist. Trade details are available to our subscribers in the watchlist section of the newsletter.
Recently, the SPDR S&P Homebuilders ETF has exhibited excellent relative strength to the broad market, as it has reclaimed support of its 200-day MA. If XHB can consolidate for a few days above this key mark, then it becomes more likely that the next move will be higher. We will be monitoring this ETF closely as a potential long candidate.
Yesterday, on a massive spike in volume, the Market Vectors Junior Gold Miner ETF (GDXJ) formed a reversal candle, as it overcut its 20 and 50 day moving averages and closed near the lows of the the day. Also notice the divergence between the Accumulation-Distribution Histogram and the price action in this ETF. A move below yesterday’s low of $29.40 may present a shorting opportunity in this ETF. We are placing GDXJ on the watchlist. Trade details are available to our subscribers in the watchlist section of the newsletter.
In Thursday’s newsletter we stated that AGA may present a buying opportunity with, “…an undercut of the 20-day EMA”. Yesterday, on an expansion in volume, AGA formed a reversal candle as it undercut its 20-day EMA and rallied to end the session in the top third of its trading range. A move back above Thursdays high of $19.71 could provide a buy entry trigger for AGA.
Following a seven day slide, the PowerShares Nasdaq Trust Series 1 (QQQ) rallied sharply yesterday, and now appears headed for a rally back into resistance of its 20-day and 50-day moving averages. Now that we have a sell signal in the broad market, a bounce back into this zone of resistance should provide a shorting opportunity in this ETF. We are placing QQQ on the watchlist. Trade details are available to our subscribers in the watchlist segment of the newsletter. For those who are unable to short QQQ, a long position in the inverse ETF, QID, would serve as a reasonable proxy for this trade.
A brief review of the S&P 500 ($SPX.X) across various timeframes provides an interesting perspective as to the market’s current structure. The daily chart of the S&P 500 appears to place the index in “no man’s land”, as the current price action is well below the 20-day and 50-day moving averages, yet well above the 200-day MA. However, it is important to note that an inverted hammer candlestick was formed on the daily chart on Friday. Inverted hammers in and of themselves are not considered reversal candles (or buy signals). However, they are often used as an early warning sign that a downtrend may be reaching exhaustion. Whenever an inverted hammer is observed after a protracted selloff and it does not occur near an easily identifiable support level (on the daily chart), we find it useful to reference both the weekly and monthly charts to gain a better picture of the market structure in terms of support and resistance levels. Notice on the weekly chart that the S&P 500 is rapidly approaching support near the 200-day MA. However, the monthly chart of the S&P provides the most pertinent information, as it shows the index is right at support of its 50-day MA. Combined, this information suggests that caution is warranted on the short side and that it may be advisable to lighten up on short positions and/or wait for a bounce in the market before considering new short entries.
Market internals were mixed. Volume fell on the Nasdaq by 4.6% but rose on the NYSE by just over 2.0%. Declining volume overwhelmed advancing volume by a factor of 24.3 to 1 on the NYSE and 12 to 1 on the Nasdaq. Based on these figures we would classify Wednesday as a distribution day for the NYSE.