Daily Stock Market Wrap: Pedaling Towards Death

The stress of the Dow finally got to the rest of the indices.

Here are some key trading levels on the major stock market ETFs:

S&P 500 (SPY) Ultimately, it will come down to whether this closes the week under 271.35 or over 278.

Russell 2000 (IWM) No more runaway gap. In fact, it’s been replaced by a reversal topping pattern with better than average volume. Scary. One good thing-holding the 10 DMA at 167.85.

Sign up for our FREE newsletter
and receive our best trading ideas and research

Dow (DIA) This looks like it will close the week out under the exponential MA (246.80). But, should it rally back above it and hold, that would give the bulls more hope.

Nasdaq (QQQ) Like IWM, from new highs to a reversal topping pattern. And unlike IWM, closed under the 10 DMA support. Will come down to whether it can hold 173.71, this week’s low so far and rally back over 176.50 or not.

Stock Market Commentary:

The Russell 2000 (IWM), with the close under prior day low or 168.95, now has the workings of a reversal top with volume.

NASDAQ 100, which made a new all-time high yesterday, with its bearish engufling pattern and close beneath 176.65 or its prior day low, also made a potential topping pattern.

It’s showtime for the Dow, now in a warning phase.

With one day to go this week, a close above or below 246.60 should determine next direction.

With all that said, the rider on the bicycle is appropriately, Transportation (IYT.)

As mentioned before, from a technical standpoint, IYT can easily fall to test 180-190 or a 5-10% move lower from the high of 201 made last month.

We like to watch IYT, but one cannot ignore Semiconductors, as SMH has the distinction of failing its all-time high back in March.

Since then, SMH has gone from Wonder Woman to the Day of the Dead.

Nonetheless, SMH continues to pedal in a Bullish phase.

With the tech sector under pressure, Transportation struggling to stay in the game and the Russell’s potentially topping out, what’s our gameplan?

In the top down macro view, the deterioration of DIA into warning, along with the possible topping patterns in IWM and QQQs, will keep us from adding long positions in equities.

In our list of equities we presently own, some have hit 1-2 profit targets, reducing the position size.

Others are profitable, so we tightened the stop to reduce the risk of going from green to red.

A couple of our positions are countertrend trades. As believer that one man’s trash is another man’s treasure, we always look for these type of trades.

Only a couple of our longs are negative. We have either tightened the stop from the original risk point, or will let them go as per our original trading plan.

However, the indices are not the only macro viewpoints to consider.

The Economic Modern Family is mixed. Although we have seen deterioration in Semi’s, Transportation, Biotech and Regional Banks, none have changed phases.

From the indices and the sectors, I look at the dollar, interest rates and commodities.

Currently, after a big run in the dollar (UUP), it broke under 25.00 today and closed right on that level.

If works its way below 25.00, that should be better for commodities, which are still at historical lows compared with equities.

We are already long some commodities. Though, lightly.

We are very much interested in building positions in either commodities through ETFs or commodity related companies such as Billiton Metals (BHP).

Interest rates, even with the recent raises, are still historically low.

That could mean that the Fed will have to stay the course, especially if commodities begin to move higher.

Or, they run the risk of that nasty word staglation, a word I’ve written a lot about lately.

Hence, we also have established short positions.

Last week, we shorted SMH by buying the ultrashort SOXS. We have yet to add to that position.

We also shorted McKesson (MCK), which we believe and have tweeted as such, has limited upside and lots of room to head south.

Over the last 2 years, buying the dip has proved the correct strategy.

Would we buy the dip now?

First, I’d like to see our ominous rider more convincingly resurrect.

Twitter:  @marketminute

The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.