Today the Head and Shoulders pattern in SPY triggered. The target area of this move is $120-$117. Last Thursday's note stressed that cash is best for the time being, as terms of the debt ceiling were uncertain and the SPY was breaking the $130 support level. Hopefully you took the suggested advice as you would have saved yourself unnecessary losses. The market has now had 8 down days, the worst losing streak in nearly 3 years. The SPY is now trading below the 200-day moving average, which it has not done since last September. The action has been fast and furious to the downside. QE2 is now over so markets are able to close on the lows as the 'Plunge Protection Team' is not there to step in and save the market. First level to test an oversold bounce is $125.28, which is the Japan crisis low with more significant support at $122. For the active investor, cash is king, and for the active trader, look for an oversold bounce, if the market opens down tomorrow.
Below are charts of the XHB, the homebuilders ETF, and the XLI, the industrial ETF, that have a Head and Shoulders pattern that have triggered and on the way to the measured move.
CMI, an industrial goods stock classified by diversified machinery, is forming a potential Head and Shoulders pattern. The neckline stands around $93. The composure of this stock is starting to change as it is now trading below key moving averages. Keep this trade idea on the radar.
Composure of the market is changing. Something to be aware of, a lot of stocks that have been holding multi-month uptrend lines are breaking those support lines.
VMW showed relative weakness to markets, which closed around -2.7%, whereas VMW closed -4.8%. VMW closed below the 50-day moving average and below the break of the uptrend line.
VNO, Vornado Realty Trust, is a REIT that had been performing well and was not able to break down in June when the market was in correction. Today, VNO reported earnings and closed -4.8% and traded with force through the 200-day moving average and the multi-month uptrend line.
ARMH, a strong stock from last fall and earlier this year, is breaking an uptrend line.
QCOM is starting to pierce through a multi-month uptrend line and closed through the 200- day moving average, which is $53.21
RVBD, a previously targeted stock that broke an uptrend line on its earnings report and was bear flagging below the level. RVBD has seen no traction to the upside since then and is creating another bear flag. Next entry will be a break of $27.70.
NFLX, a market leader, started breaking the upside momentum before the market. Use this as a gauge for the market. NFLX is creating a steep downtrend line as it pulls off from highs and it continues to hold the multi-month uptrend line. Important to note, NFLX has not closed below support of the 100-day moving average in a few years. The 100-day moving average in NFLX is $250.92.
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