Actionable Trades: SPY, DIA, OIH, AAPL, AMZN, GLD,

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.

Actionable Trades: SPY, QQQ, XRT, AXP, NFLX, GLD,

Sellers came into the market early and faded the small gap up in the indices. The move was fast and broke some key support areas in the SPY, including the low from the Japan crisis, $125.28.  Going into today, the market had 8 straight days of selling, and with oscillators showing very oversold levels traders were looking for a bounce. When selling intensified early in the day and appeared climactic, it provided an 80-20 reversal entry. 

After the market was pressured for the first hour of trading, the leaders in the tech sector like AAPL, AMZN, NFLX, and BIDU started bouncing off the morning lows, giving some indications that the market could bounce as well.  A calculated way to buy the dip is with the 80/20 Reversal Strategy. In this case, it was a buy against the morning low, $125.53, with an additional add through the previous low of $125.49.  This reversal strategy is a way to capitalize on an oversold bounce when the market was extended on the downside.  The stop on this trade is $125.53.  Now that we have the strategy we need to see what this leads to. Is it the start of a new move or just a cash flow trade to relieve some short term pressure?  $127.50 is the first resistance area, which is the retest of the neckline in the macro Head and Shoulders Pattern, and the next major resistance area is $128.30-.80, a retest of the 200-day moving average.     

 

QQQ, the stronger index compared to the S&P, the DOW, and the Russell, gave an 80/20 Reversal trade as well.  This is a calculated strategy to buy a dip.   
         

The XRT, the retail ETF, gave an 80/20 entry today, as well.  After seeing a few days of selling, the prudent trader is patiently waiting for an opportunity to buy a dip for a potential reversal trade.  This does not mean the selling is over in the XRT, however it is a good, calculated trade for cash flow, when entering into oversold territories.

   

AXP is another example of an 80/20 trade.  ENTRY: yesterday's low: $48.50.  STOP: low of the day: $47.53.  This could be the start of a swing trade or it could just be an oversold bounce to relieve some short term pressure.  Watch the price action to take profits on the trade.    

  

    

In yesterday's newsletter, NFLX was highlighted as a market leader that started breaking the upside momentum before the market.  Also, NFLX had not closed below support of the 100-day moving average which was $250.92 in a few years.  It came into this support in the first hour of trading before bouncing and closing the day +1%, showing relative strength to the market.  NFLX is creating a steep downtrend line as it pulls off from highs, if it trades above the downtrend line on volume, that will be next entry in NFLX.  Use this as a gauge for the market.  

Today we saw a lot of 80/20 reversal trades as stocks and indicies were extended to the downside.  You can also use the 80/20 strategy to find a calculated short when a stock is extended on the upside.  Gold opened at new highs this morning, and gave a calculated short entry when it began to trade through yesterday's high of $161.62.  Stops are today's high, $162.86.  If this trade leads to more downside action, it could give more confidence to a bounce in the market.  GLD could see a move down to $155.40, the 21-day moving average, without causing any technical damage to the recent strength.

 

The Bubble Has Popped -- Now What?

A rare halt in oil trading Wednesday triggered a sharp selloff in commodities and equities in markets afraid of an encore of last week’s commodity plunge. The last halt in oil trading occurred in September 2008, a week after the collapse of Lehman Brothers.

Sliver lost 9% in the selloff, erasing gains in the previous couple days and was down another 6% as of this writing. It has yet to find a bottom -- or as Bob Barker of "The Price is Right" might say, “Down, down it goes -- where it stops no one knows.”

Now with the increased margin requirements driving a number of speculators out of the market, the precious metal may seek out price levels more in keeping with historical norms. Those prices are calculated by seeing how many ounces of silver are needed to buy an ounce of gold. Over the past 10 years the ratio has been roughly 60:1. If silver were to return to a similar ratio, it could go down as far as $25 an ounce. iShares Silver Trust(SLV), the proxy we use in lieu of silver at Smartstops.net, has the short-term stop at $31.97 and the long-term stop at $29.37.

If that wasn’t enough to make you reconsider being long commodities, the Powershares DB Commodity Index Tracking ETF (DBC) has formed a head-and-shoulders. A pattern associated with a change in trend direction. The neckline/support of the pattern coincides with the Smartstops.net short-term stop at $28.16 and the long-term stop at $27.30.

SmartStops provides effective, easy-to-implement risk monitoring for investment professionals and individual investors to optimize profits and minimize losses.