Saturday, March 3, 2012

Saturday Setups and Outlook - A Very "Iffy" Market - 3/3/12

Hi, traders - here's the outlook for the upcoming week.  If you look at the charts of just the Nasdaq and S&P, you probably wouldn't be too worried about the overall market as both continue to ride their nine day EMAs higher.   If you look closer, however, you can see some divergences with price and moneystream that is a bit worrisome.   If the nine day EMA does break at some point this week (it's held the ENTIRE YEAR so far for the Nasdaq), I think there is a very good chance of seeing a sharp, quick move lower of 2-4%.   Hopefully, the market could right itself from there but it is probably not something you want to sit through if you have a lot of long positions. 

 S&P 500

On the other hand, if you look at the chart of the Russell 2000, you probably would be worried.   This chart has been lagging for about a month now, both in not being able to challenge 2011 highs like the Nasdaq and S&P did and also moving sideways while the other two indices ground their way higher.   We have seen a breakdown here over the past two days and I have a TZA position as of now based on this chart. 
Small Caps

Breath has deteriorated as well over the past few weeks and my breadth indicator is as close as you can be to being on a sell as you can be.   If we see anymore selling early next week, it will turn to a sell.  What we need to see based on this chart is for the bulls to step back up and show some strength soon.   They (the bulls) have been weakening for a week or two now and although we haven't seen a ton of heavy selling, we've seen virtually no heavy buying and that's the problem. 

Breadth Ratio - Very Close to Getting Below 1

In terms of setups, this was not a great weekend of scans as I went through my charts.   There are still some out there, but the number and quality of setups is certainly not what it was in January.  Perhaps that's telling us something as well.   There are a few really, really, really thin names out there that look decent like SVN, BIOS, KH, and STV, but when a $4 stock averages less than 100K volume a day, it is certainly not one that has "buy" written all over it.   I am not opposed to entering long positions here even with the market being "iffy", but just be aware that it is more risky here.  Being aggressive on the long side could really get you into trouble at this juncture.  

 All Charts from TC2000, Courtesy of Worden Brothers, Inc.

I've included some short setups in this summary for the first time in 2012 simply because I have started to see some decent ones.  Personally, I don't plan on shorting anything yet except for maybe some inverse ETFs because I think a top (if in fact we are forming one here) will take some time and dip buyers will provide some underlying support, so shorting will be very hard to do.  A better plan in my opinion will be to raise cash and if the market rights itself and we see a renewed strength from the bulls, then enter some of the strong leaders of this rally. 

All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Bottom-line overall is that there are markets to be aggressive in and ones to be passive in, and I think this market falls into the latter category.   There is nothing wrong with a market consolidating gains - it is healthy and needed as it allows for new patterns to set up on individual charts and for the market to start new moves higher.   However, consolidations can easily turn into corrections if they last too long, and I sense that we are getting close to that point where this "consolidation" will turn into more of a correction unless the bulls step up soon.   Let's see what they do this week.  I am mainly in cash and waiting patiently.  Good luck and enjoy the weekend.


Anonymous said...


Thank you so much. I want you to know how much I appreciate your guidance and analysis. It helps me a great deal.


PocketWiseTrader said...

Good detailed information. Certainly, market breadth has started showing some selling since last 10 days which shows underlying strength is loosing its momentum.

Also, I look at the overbought-oversold ratio and it also turned negative yesterday to its highest level since Nov 18th.......

I am returning into cash as well and ready for shorting...

Nice to see fellow trader sharing similar point of view..