Yesterdays reversal trade was nothing more than a relief of some oversold pressure. The Head and Shoulders Pattern in SPY took 8 months to build, but is achieving the measured move in just 3 trading sessions. WOW! This down move is fast and furious with weakness and technical damage across the board. This move is due to a combination of factors, with deteriorating economic numbers, escalating problems in Europe, and an absence of Quantitative Easing. Many pundits have opined that stimulus packages and QE artificially inflated the market, and now it appears the chickens are coming home to roost. Tomorrow is the Jobs Number, and we will be watching close to see how the market reacts.
Below is a weekly chart of the S&P. This week the S&P broke a multi-year trendline. Composure has definitely changed in the market. It is good to know retracement levels, so you can be prepared to test major support areas for oversold bounces. From the lows of March 2009 to the highs of May in 2011, the 25% retracement level is 1195, and the 38.2% retracement level is 1102.
The DOW closed down more than 500 points today and had the biggest 10 session loss since March 2009 lows. Below is the weekly chart of the DIA, the Dow Jones Industrial average. This also broke a multi-year trendline.
The OIH's, previously a market leader, has had a major composure change in the last couple of trading sessions. It is now trading below key moving averages and traded with force through the 200-day moving average and closed on the lows. Today, the OIH closed -8.81%, showing relative weakness to SPY, which closed the day -4.8%.
Below is a weekly chart of the OIH. It is good to look at weekly charts when daily time frames become invalidated by large price movements and extreme volatility. When looking at a longer time frame of the OIH, something interesting to note is the the highs of April 2011 was the 61.8% retracement from the highs of June 2008 to the lows of December 2009.
AAPL broke the earnings low today, not surprising when the market is under extreme pressure. For the active investor, the next compelling level to test a buy is a retest of prior highs, $365 area. For the active trader, continue to scalp AAPL for cash flow.
After the push through failure in AMZN on Monday (8/1), it was noted that it would be best to avoid AMZN for now as it would need more time to build a base. If you did not lighten up on your position then, the next out was once it broke bigger support of $215. Now AMZN is approaching more compelling levels to test an oversold bounce. First level, $201. If that does not hold, $195 is more compelling.
Yesterday, it was noted that there could be a possible reversal trade in GLD as it failed to hold new highs. The strategy used for this trade was an 80/20 reversal trade, which uses a calculated entry and stop. This morning GLD gapped up, but gave a way out of the trade and set-up a new 80/20 trade. Entry: $162.86, Stop: today's high: $163.83. GLD could see a move down to $155.40, the 21-day moving average, without causing any technical damage to the recent move.
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