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short setups (2)


Watch The Potential Double Tops

Doubles Tops are forming in two key ETFs, the Semiconductor SPDR (XSD) and the Consumer Discretionary SPDR (XLY), and chartists should watch these important groups for clues on broad market direction in the coming week or two. First, let's talk about the Double Top. These patterns form with two peaks near the same level and an intermittent trough that marks support. A break below support confirms the pattern and targets a move based on the height of the pattern. 

Achtung! A Double Top is just a POTENTIAL Double Top until confirmed with a break below the intermittent low. In other words, the trend is still up as long as support holds. Furthermore, Double Tops are bearish reversal patterns and trend continuations are more likely that trend reversals. 

The chart above shows a potential Double Top brewing in XSD over the last three months or so. Because this is an ETF with dozens of moving parts (components), I am marking a support zone using the mid May low and the June low. A close below 60 would confirm the pattern and project a move to the 53 area. Note that the height of the pattern is 7 points (~67 to ~60). As long as XSD is near support, chartists should also be on guard for a bounce off support and break above first resistance at 63. The next chart shows a Double Top brewing in XLY with similar characteristics. 

A number of things can happen going forward on both charts. First, support could hold and the uptrend could continue from here. Second, support could fold and the Double Top could play out. Third, there could a support break and then a bounce off the rising 200-day EMA (bear trap). Just keep an open mind and prepare for different outcomes. 

The Semiconductor SPDR (XSD) is a broad-based ETF with 35 stocks. Quick! Can you guess the top two holdings? Stop for a moment and think.....Would you have guessed First Solar (FSLR 4.33%) and SunPower (SPWR 3.77%).? I certainly would not have guessed those two. According to SPDRs.com, the top ten stocks account for around 35% of the ETF. The Consumer Discretionary SPDR (XLY) is a market-cap weighted sector ETF with Amazon weighing in at a whopping 15.13%. According to sectorspdr.com, the top ten components account for around 57% of the ETF. Chartists interested in XLY should also watch AMZN, CMCSA, HD, DIS and MCD.

Courtesy of StockCharts

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Buyers Stay Home; See You Next Fall

(Click image to enlarge)

There's nothing here that even remotely makes me want to make a purchase. These are weekly shots of the main indexes so what do you see?

We rallied up over weeks like crazy madmen, squeezing out weak shorts and even had the heaviest shorted sectors help out with a short covering rally; getting the weekly into 'overbought' levels. We came up right against the long term column trend line resistance, hit overbought levels...........the weekly is rolling over. Another failure. Sorry boys. So much for that.

Certainly day traders and short-term swing traders will make their long plays but who has time for that............and why go against the trend of 'this' market......which is down. That's rhetorical.

  • We know the market is stretched on a valuation basis.
  • Don't even throw out the strange valuation approaches.
  • We know there's no more QE coming out of Washington.
  • We know earnings are a disappointment and guidance has for the most part been completely uninspiring.
  • Things of concern lie ahead: China has data coming out (retail sales, producer price figures, and the consumer sentiment survey) over the weekend which could inspire or deflate the market. Where's the growth we need?
  • Brexit and FOMC loom.
  • Our own bad news has been wide spread: Retail has been completely disappointing with big losses, Shell spilled oil in the Gulf a la BP (here we go again). AAPL wants "into" the auto driving business (say what?), BIDU is under investigation, BABA has been suspended from an anti-counterfeiting group (I have to laugh at that one) and FB swears their unbiased, they think and of course there's politics weighing on biotech and healthcare. Did you see hospitals last week?  Ouch!  If there's good news out there, it doesn't last long.  See how that changed? 
  • If it weren't for the tar sands oil fire in Canada, crude oil wouldn't be helping market hold what we have........and the winners are shrinking; make no doubt about it.

The daily charts show a small head-and-shoulders top formed and we're perched right at the neckline; probably waiting for Yellen's FOMC on Wednesday........but will it matter?

Me, I am short various names such as BIDU, NFLX, CAT, COH, TXT, just to name a few. 

Have any setups or plays to share? Bring 'em on!  I'll play the short side..........unless Janet changes the game.

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