Today we saw continued intense selling pressure following the downgrade of the U.S. sovereign debt, which triggered a sell-off around the world. Today every stock in the S&P 500 closed negative! The action right now provides ample opportunity for the skilled active trader, but for the active investors, the most prudent move right now is to sit on the sidelines until there is more clarity. This is a scalping market, as you are getting two-way action. The Head and Shoulders pattern that was previously targeted, has now met the measured move and is in the midst of an overshoot. It is crazy that 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 market is slippery. SPY is 100% off the March 2009 lows and only 18% off the April 2011 highs. That is a normal correction, but with the intervention of Quantitative Easing that was propping up the Market, traders and investors were spoiled previously by being saved when the Market started to dip. Next key support in SPY is $105 and then $101 area. Today, SPY closed the day down over -6%. In volatile times, it is good to limit your focus.
Below is a weekly chart of the S&P. Last 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, we are below the 25% retracement level but the 38.2% retracement level stands at 1102 and the 50% retracement level is 1019. Remember, it is good to look at weekly charts when daily time frames become invalidated by large price movements and extreme volatility.
With oil futures getting crushed, the ETF, OIH, is getting crushed as well. The OIH's, previously a market leader, has had a major composure change in the last couple of trading sessions as it is trading well below key moving averages. Today, the OIH closed around -10%, again showing relative weakness to SPY. Below is a weekly chart of the OIH, again something to note, the OIH rallied into the 61.8% retracement level in April this year from the June 2008 high to the December 2009 low. There could be an oversold bounce in OIH, when it comes to test the ascending trendline.
AAPL closed on the lows today, around -5%. When the market is pressured like we are seeing now, the charts become broken. The best way to play these trades is at the extremes of the ranges with a level versus a level. The 50-day moving average is $353.93 and the 100-day moving average is $347.76. It is important to know key support levels, so you can take advantage of the moves. There are big ranges for the intra-day action to scalp both long and short.
NFLX is another broken stock. It has now traded below the longterm trendline and 100-day moving average, maybe play versus the 200- day moving average. A good piece of advice is to avoid playing stocks like this when the market is so volatile as they are hard to handle, especially when you are seeing such large price movements in the indicies.
The banking sector continues to be a drag on the market and having been showing relative weakness all year. The trend is down and momentum is to the downside.
FAZ is an inverse ETF for the banking sector. It has been on the move, while banks get hammered on the downside. FAZ closed over +25% today and banks like BAC closed over -20%, C and MS closed over -15%. When volatility is in the market, inverse ETF's come back into play, which are good vehicles for the active trader. Also on the moves is the VXX, which gauges fear and volatility in the market. Today it closed over +15%.
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