A tough week for the market indices as the SP 500 dropped 3.5% and we saw the largest weekly decline since 2012. We had warned our Premium subscribers early in the week that a drop to 2000 on the SP 500 would not surprise us from the prior week 2075 close near all time highs. We have a few proprietary topping indicators and both were giving us an early warning signalto reduce exposure to the markets.
One to watch is the NYSE index, which removes the noise of ETF vehicles. This is showing atriple top breakdown right now, with room on the downside still there. Old school market watchers follow the NYSE as best representing the broader markets. We are stock pickers for sure and can work around some of these issues, but nonetheless its important to understand the direction of institutions and right now they are net sellers. We can also deploy 3x ETF’s to short the markets or sectors and raise cash. In addition sold out sectors like Gold stocks and Energy perhaps could give rise to some killer swing positions in early 2015.
Earlier in the week at our Stockreversalspremium.com service we alerted subscribers to take profits on a few stocks before the market tumble late in the week. We felt reducing market exposure and portfolio risk was a prudent move. We sold some of our EXAS for 22% gains while holding 1/2 for example.
The SP 500 rallied 259 points from the October lows, which back then we were calling a typical September-October swoon. At some point the buyers get exhausted and the sellers start to get a little more control. We are also in tax selling season, we have Oil crashing, and in addition to that Hedge Funds having a horrible year and booking more losses on their books. All of this finally culminated in a washout sell off late in the week but there could be some more downside.
A typical correction is a Fibonacci relationship to the prior rally and the low-end is a 23.6% retracement of a 259 point rally. That would initially point to a 61 point decline which we already surpassed. More common is a 38% to 61% retracement of that entire 259 point move. So the next pivot level is around 1980 and there is a gap at 1994 in the SP 500 as well that seems likely to fill. So we would keep an eye on that 1980 area as a possible bottom pivot ahead of a Santa rally.
What we are worried about is the action in January which could be quite volatile in the first few weeks. Energy stocks are obliterated but not yet a buy as some 70% of them have breakeven operations at $55 oil, and we are at $57. Recall how long this Gold bear market has gone one (over 3 years), so no rush to get in just yet but worth watching for a January rally bounce.
Right now the market breadth on Friday was ugly with 347 new lows on the NYSE vs only 49 new highs. Biotech stocks look and feel like a blow off top is forming near term with stocks like AGIO, BLUE, KITE and others rushing to parabolic highs. New IPO’s in the sector are going up fast on little data, it all smells to us like 1999 internet stocks. The thing is, we love Biotech at StockReversals and cover them all the time… so we hope we are wrong.
Now this doesn’t mean all is wrong in market land folks. In fact, we noticed one of our 2013 business disruptor picks ZLTQ (Dec 2013 at $18) just hit all time highs at $29 this past week on very strong earnings recently. Zeltiq makes a fat cooling technology we wrote about a year ago as “disrupting”. BlueBird Bio which we wrote about several times on Stocktwits at $23, $34, $44 is now at $93 per share just 7 months after we told people they were “killing cancer” at $23 a share. Kite Pharmaceuticals we discussed on Stocktwits at $33 in October is now at $54. So there are areas working no doubt, but they tend to be focused in just a few select sectors meaning market breadth is getting thin.
We also are watching GOLD closely and would love to see a close over $1241 for us to get confirmed bullish, and we are not quite yet seeing the stocks in the precious metals sector confirming a low, but getting close.
We do have some fresh ideas and a few recent ideas repeated that are possible near term entries for Premium members depending on market action, and also for further review. We list them with brief notes below.
BITA- Bit Auto, the Chinese auto website based financing and car information service. Big drop in share price but may form a double bottom in the $62-$63 area
AKRX- Akorn Pharmaceuticals- This one is holding up really well in the sell off and forming a 4 month base
EPAM- A 3 weeks tight base, this is the 3rd time it has been on our weekend list
CDW- Computer information/re-seller forming a nice base
VRX- Would be a possible entry on this pullback closer to 135, but we would sell it below 131
PTRY- Pantry- 6 week breakout
SSNC- 7 week ascending base, was on a weekend list recently
LDL- Lydall, possible 7 month base that could breakout
ZUMZ- Retailer nearing highs, close to 5 week breakout
CNC- Healthcare centers, new highs and in a 7 week ascending breakout
ZLTQ- A former Business Disruptor at $18 now $29, but nice 3 month breakout
QLYS- Also on list recently, security provider for I.T. networks nearing 5 week breakout
So there are a few names for consideration and a few of which may make our Alert swing trade positions near term at the premium service…. market willing… and if the market is not giving us a green light we will sit tight for a bit longer.
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