The red box in the SPY chart above shows the rectangle the market is currently trapped in (approximately $107.50-$112.50). Eventually, this rectangle will break in one direction or the other. However, I personally do not want to make an anticipatory bet. From my observation, most traders are so used to the market trending that either consciously or unconsciously traders discount the possibility of the market trading range bound for an extended period of time.
The good news is that I’m starting to see divergences among indexes. Since the decline started in 2008 and then during the entire 2009 rally, everything has been correlated. The market is always changing and in a range bound market being long or short won’t work. You have to own the right stuff. Before I get into that, I’ll quickly go through my moving average analysis (shown below).
There are not a lot of changes this week. Generally, the market remains in its uptrend. Notable changes from last week include SLV which has broken its 50 DMA and is sitting on its 89 DMA. I mentioned the Sugar (SGG) breakout on Friday.
| Primary Trends | 12/13/2009 |
| 50 day MA – SPX | Above |
| 200 day MA – SPX | Above |
| 300 day MA SPX | Above |
| 50 day MA -QQQQ | Above |
| 200 day MA – QQQQ | Above |
| 300 day MA -QQQQ | Above |
| 50 day MA – FXI | BELOW |
| 200 day MA – FXI | Above |
| 300 day MA – FXI | Above |
| 50 day MA – IWM | ABOVE |
| 200 day MA – IWM | Above |
| 300 day MA – IWM | Above |
| 50 day MA – GLD | Above |
| 200 day MA – GLD | Above |
| 300 day MA – GLD | Above |
| 50 day MA – SLV | BELOW |
| 200 day MA – SLV | Above |
| 300 day MA – SLV | Above |
| 50 day MA – PTM | Above |
| 200 day MA – PTM | Above |
| 300 day MA – PTM | Above |
| 50 day MA – USO | Below |
| 200 day MA – USO | Above |
| 300 day MA – USO | BELOW |
| 50 day MA – UNG | Below |
| 200 day MA – UNG | Below |
| 300 day MA – UNG | Below |
| 50 day MA – SGG (Sugar) | ABOVE |
| 200 day MA – SGG (Sugar) | Above |
| 300 day MA – SGG (Sugar) | Above |
| 50 day MA – LD (Lead) | BELOW |
| 200 day MA – LD (Lead) | Above |
| 300 day MA – LD (Lead) | Above |
| 50 day MA – NIB (Cocoa) | Above |
| 200 day MA – NIB (Cocoa) | Above |
| 300 day MA NIB (Cocoa) | Above |
| 50 day MA – JO (Coffee) | Above |
| 200 day MA – JO (Coffee) | Above |
| 300 day MA – JO (Coffee) | Above |
| 50 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Above |
| 200 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Above |
| 300 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Above |
| 50 day MA – JJN (Nickel) | Below |
| 200 day MA – JJN (Nickel) | Above |
| 300 day MA – JJN (Nickel) | Above |
| 50 day MA – JJC (Copper) | Above |
| 200 day MA – JJC (Copper) | Above |
| 300 day MA – JJC (Copper) | Above |
| 50 day MA – BAL (Cotton) | Above |
| 200 day MA – BAL (Cotton) | Above |
| 300 day MA – BAL (Cotton) | Above |
| 50 day MA – COW (Livestock) | Below |
| 200 day MA – COW (Livestock) | Below |
| 300 day MA – COW (Livestock) | Below |
| 50 day MA – $USD | Above |
| 200 day MA – $USD | Below |
| 300 day MA – $USD | Below |
| 50 day MA -LQD | Above |
| 200 day MA – LQD | Above |
| 300 day MA – LQD | Above |
| 50 day MA – FXE | Below |
| 200 day MA – FXE | Above |
| 300 day MA – FXE | Above |
| 50 day MA – FXA | Even |
| 200 day MA – FXA | Above |
| 300 day MA – FXA | Above |
| 50 day MA – FXB | BELOW |
| 200 day MA – FXB | Above |
| 300 day MA – FXB | Above |
| 50 day MA – FXC | BELOW |
| 200 day MA – FXC | Above |
| 300 day MA – FXC | Above |
| 50 day MA – FXY | ABOVE |
| 200 day MA – FXY | Above |
| 300 day MA – FXY | Above |
| 50 day MA – FXF | BELOW |
| 200 day MA – FXF | Above |
| 300 day MA – FXF | Above |
| 50 day MA – JNK | Above |
| 200 day MA – JNK | Above |
| 300 day MA – JNK | Above |
| 50 day MA – TLT | Below |
| 200 day MA – TLT | Below |
| 300 day MA – TLT | Below |
| 50 day MA – DMM | Above |
| 200 day MA – DMM | |
| 300 day MA – DMM |
USD finally moved above its 50 DMA and its trading up at the 89 DMA. I won’t rehash my expectation of range bound action over the coming months, but I will say that I don’t think we will be talking about USD very much over the coming months. I expect $USDUPX to trade up to about $57 and hang out in the $54-58 range. I actually think we’re already seeing the “Santa Claus effect.” The market is strong right now but the rising USD is putting a lid on it.
With respect to specific sectors, I’ve gone through the indexes and categorized them as strong when they are trading above their 20 DMA and weak when they are trading below their 50 DMA. Indexes that do not fall into these categories are not considered strong or weak.
Strong: XLV, XLY, XLK, XLI, SMH, XLU, IYT, IYR, IHI
Weak: XLF, XHB, XLE, XRT, IAI
Generally, I would be watching for good entries in the strong sectors and I would stay away from the weak sectors. Notice that I’m not interested in shorting anything. I think it is a bad idea to short stocks when the major indexes (including IWM now) are trading above their 50, 200 and 300 DMAs. Why short stocks when the market is trending up? It means you have to be right about picking a top. Those that follow trading blogs know how successful picking tops has worked over the past 6-9 months (sarcasm).
I’ll hopefully have some specific trading ideas once the week gets underway. I continue to operate within my framework from last Sunday.
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Steve
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Doctor Stock
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chartsandcoffee
