August 19, 2013 at 09:15 AM EDT
Is It Time to Look for Reversal?
NASDAQ:AAPL, NYSE:LNKD, NASDAQ:NFLX, NYSE:XLI, NYSE:IWM, NYSE:XRT, NYSE:XLF, NYSE:XHB, NYSE:XLU, NASDAQ:GOOG, NASDAQ:TSLA, NASDAQ:FB, NYSE:GLD, NYSE:SLV, NYSE:TBT Related posts: Can Market Build on Last Week’s Reversal? A Great Spot For A Gold Reversal S&P 500: How A Failed Trade Can Forecast An Intraday Reversal Stock Market: Correction or Trend Reversal? The Market Vectors Steel ETF (SLX) Looks To Be Forming A Bullish Reversal

morningcallScott Redler: World markets are mixed this morning as investors try to figure out what’s next. Last week we discussed the small head and shoulders pattern that was forming in the market and some weakness in sectors that could lead to a pull-back. The signal to pare down some risk on a short time-frame came when the S&P couldn’t hold 1698 on August 6th. The market did have a gap and go to the downside Thursday, and then hit a natural target at the 50-day MA on Friday.

Today, futures are hovering around flat line as oscillators are in the type of oversold territory that we’ve seen only twice in 2013. The oversold conditions make it very hard to sit short, but playing a bounce can also be very tricky. If you are going to look to catch a bounce, I would use a “Red Dog Reversal” type strategy, which is a method for buying a stock vs. a level with a plan. A reversal can sometimes lead to a day and a half move, or more depending on each individual set-up.

SPY has a pivot low from Friday at $165.50 and then your next point of reference under this is $164.63. The next major spot is the gap from July 8th that has support at $163.50 and that also lines up to the 100day at $163.20.   If a bounce starts- you have  resistance at $166.63 and then the gap at $167.43-

In today’s Morning Call we will check the temperature in some key sectors.

The Industrials ETF (NYSE:XLI) showed relative strength after last week’s sell-off in the market, as it’s still hovering around the 21-day and well above the 50-day. This group hasn’t got much volatility as it’s been on a steady uptrend since November 2012. It’s trying to build a base at $44.77 area. Below that $44.24 is a bigger support zone.

The Russell 2000 ETF (NYSE:IWM) also saw a big gap down on Thursday but is still holding above its 50-day. However, the IWM doesn’t look like it has found its footing yet. Another push lower into the 50-day, which stands at $101.16, could give us a new pivot to trade against as this is a big support area. This sector could be an avoid until then.

The Retails ETF (NYSE:XRT) was hovering near highs and showing relative strength during the months of July/August until last week it dropped below the 50-day following a big gap down. It’s struggling to get back above this key moving average. The longer it stays below the 50-day at $53.89, the higher the probability it could see lower prices.

The Financials ETF (NYSE:XLF) got hit big and broke below its 50-day. It’s struggling around this key moving average. If it can’t find a friend at this $20 level, it could retest the 100-day at around $19.51.

The Homebuilders ETF (NYSE:XHB) traded inversely with the market last week as it saw a strong bounce on Thursday to get back above the 200-day moving average. It had nice follow-through on Friday but also finished on lows. This was a good example of a Red Dog Reversal day and a half strategy. It’s currently sitting at the 200-day at

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Related posts:

  1. Can Market Build on Last Week’s Reversal?
  2. A Great Spot For A Gold Reversal
  3. S&P 500: How A Failed Trade Can Forecast An Intraday Reversal
  4. Stock Market: Correction or Trend Reversal?
  5. The Market Vectors Steel ETF (SLX) Looks To Be Forming A Bullish Reversal

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