Laggards Join the Rally
Carter Worth’s prediction that small-caps and transports would break out came true on Wednesday. However, it wasn’t a decisive victory. The IWM made a new closing high for the rally, but it came up short of taking out the intra-day high of 68.00 from June 21st. It missed by a nickel. The IYT did the same thing: it made a new closing high, but came up a penny short of the intra-day high of 82.26 set on September 21st.
Note to bulls: nice try.
Also, it seemed like money was rotating out of large caps and tech, and into small caps, transports, and energies. The SPX, NDX, and Dow were all down a bit on the day. Of course, this rotation makes sense since there is no new money coming into the market. Retail investors pulled out another $2.5 billion last week.
Laggard XLF dropped on the day, so there was no rotation into the hapless financials, and XLF is nowhere near breaking out of its five-month long trading range. But since the market demonstrated an appetite to rotate into the laggards, if we get another rotation day, the XLF might play “catch up” with a monster move. So, you might want to keep it on your screen, along with UYG and FAS if you are the gambling sort.
Weak Selling Volume Again
After the market dropped on Monday, I said: “Volume on Monday was light, so the selling was not serious.” And the market did indeed rally back a bit on Tuesday. And while SPY dropped 20¢ on Wednesday, it’s volume declined from Tuesday. So: bears beware.
Overnight, the SPX futures often like to test the previous day’s highs and lows. Tonight, they have chosen to test Wednesday’s lows. That might not be terribly bearish, but you can’t call it bullish either. (As of this writing, Wednesday’s low has held.)
Swim or Die
The bulls have been rather lazy this week with the SPX suffering a four-point loss so far, and it just might be swim-or-die time. On the chart below is the 60-minute SPX with the 20-period moving average in red, and the 50-period in blue. Notice how they are within striking distance of a cross-down (click chart to enlarge):
Now look at August 10th. That cross-down lead to a good deal of unpleasantness. And if you are a day-trader, you want to be aware that the cross occurred in the middle of the day, but the market then rallied smartly into the close. Then it gapped down the next morning. So, just because you spot a critical cross-down, it doesn’t mean that the market won’t fake you out, and even leave you leaning the wrong way before the big move. The market is very sinister that way, and will, in fact, fake you out 99% of the time – even when you are hunting the move and have the right idea.
Notice also that we almost had a cross-down on September 23rd, but the market then blasted higher. The moral of the story is that such cross-downs are often momentous, but tricky to play.
After being in the red all night, futures blasted into the green after both GDP and Unemployment Claims came in better than expected at 8:30am Thursday morning.