Yesterday, on increasing volume, the S&P 500 ($SPX.X) lost support of and closed below its 50-day MA. The question now becomes whether or not this broad market index can reclaim this key mark and resist further decline. If the S&P cannot find support at the current level, it is quite possible that we could retest the most recent swing low near 1,100.
For the past four sessions the ProShares UltraShort Euro ETF (EUO) has been consolidating just above its 20-day and 50-day moving averages. A volume assisted move above the two day high of $18.91 could provide a buying opportunity in this inverse ETF. During the recent market rally the iShares MSCI EAFE Index ETF (EFA) has shown relative weakness as it was unable to even get close to its 200-day MA. EFA is now below support of all of its moving averages. A move below the two day low of $49.03 could present a short entry trigger for this ETF.
We are removing XRT from the watchlist because the setup is no longer valid given the recent selling pressure in the market. However, XRT is still showing relative strength amidst the market weakness and as long as it holds support at the 50-day MA, it still provides an opportunity on the long side. XRT must now stabilize and consolidate in order to establish a new setup for a long entry. We will continue to monitor this ETF closely.
Yesterday, on heavier trade, the iShares MSCI Japan Index ETF (EWJ) lost a major support level at $9.17. Prior to yesterday EWJ has held support at this level dating back to July 2009. Yesterday was a clear short entry trigger for EWJ. However, it is not advisable to “chase the trade”. Rather, we prefer to wait for a bounce if we were to enter EWJ on the short side. The Market Vectors Junior Gold Miners ETF (GDXJ) has come under pressure lately as it has posted consecutive distribution days. Further, GDXJ is now below both the 20-day and 50-day moving averages. However, GDXJ is stilling clinging to support of its uptrend line. A loss of support of the uptrend line could result in a shorting opportunity in this ETF. We are monitoring this setup carefully for a potential short entry.
The Direxion Small Cap Bull 3x Shares (TNA) has been consolidating along its 20-day EMA as it has been setting a sequence of higher lows. This contraction in price action is one of the things we look for in stocks that are potential long candidates. Yesterday, on a big spike in volume, TNA undercut its 20-day EMA but recovered to close back above this key mark and at the three day high. A move above yesterday’s high of $47.64 could provide a buying opportunity in this ETF.
The SPDR Gold Trust ETF (GLD) has recently reclaimed support of its 20-day and 50-day moving averages. Further, GLD has now begun consolidating above these key marks. Ideally we would like to see GLD pull back and set a higher low by undercutting the 20-day EMA. This type of price action would help to form a base for the next move higher. Alternatively, a move above the two day high of $174.05 could present a buying opportunity.
The First Trust Dow Jones Internet ETF (FDN) has been setting a sequence of higher lows along its 20-day EMA, as it has consolidated below the 200-day moving average. A move above the November 8th high of $34.62 could present a long opportunity in this ETF. Ideally, we would like to see FDN’s price action tighten up just below the 200-day MA prior to the next breakout attempt.
Although we exited our positions in XRT and PPH yesterday, both ETFs are still potential long candidates. In volatile markets it sometimes makes sense to take a trade off the table and re-enter if and when another setup presents itself. XRT could provide a partial position entry above the two day high ($52.50). On Wednesday, XRT pulled back on lighter volume and undercut the 20-day EMA. Yesterday it formed a reversal candle on higher volume, suggesting it was being accumulated. We may consider building a position in this ETF by taking small size above the two day high. However, we prefer to make the call intraday due to the recent volatility in the market. Ideally, XRT needs to consolidate for a week or two more in order to build a sufficient base from which to launch a potential rally. PPH also performed well on Thursday but requires more sideways action in order for a quality setup to develop. What we would like to see in PPH is the formation of a higher low followed by additional consolidation prior to a possible move higher.
Our positions in both PPH and XRT broke above the three day high and now appear ready to set new swing highs. However, despite the positive price action and internals, the market could easily continue to chop sideways for several weeks before potentially moving higher. We are now approaching key resistance and the last time we saw these levels the market pulled back sharply. A quick look at the charts of the S&P 500 and the Nasdaq.