Just after 12:30 EST I got an upside alert at the 875 level on the retailers. This was a level where the 50% retracement had been acting as a short-term level of resistance along with a newly placed downward trend. If this index were to close above the 875 level, that could be a sign that the market feels the economy is recovering and the consumer will be spending down the road. While it's nearly impossible to say a trade above 875 could mean all this, it's a scenario we put in place months ago when we identified this group as a "key group" for traders and investors to keep tabs on.
S&P Retail Index Chart - 60-minute interval.
We've looked at the daily interval chart (big picture) before, so lets take a look at the 60-minute chart and start identifying levels to be targeting for bullish trades, or observation levels, to help give us an indication on how the MARKET views the retail sector and perhaps the future economy. A break above our "confirmation" level at 890 would be confirmation that our "new down trend" has been clearly broken. Swing traders will be targeting the 62% retracement level near 916. A move above 916 might mean that the economy is recovering nicely and perhaps starting to grow once again. I lay out the above as it relates to my scenario at current levels. I'm a firm believer that the MARKET is very accurate at "predicting" or "foreseeing" the future, therefore I have to have scenarios in place so I can test them with the charts. As long as my (or your own) scenarios are still in play, you're trading with confidence and should be on the right side of trade. Can you think of any reason why the Retail Index would be moving higher if it were not in anticipation of a strong consumer? If so, send me an e-mail! Caution!! Don't go betting the farm on a strong economy with the RLX.X trading at 875.02 on a sixty-minute chart. That wouldn't make sense.
CBOE Internet Index Chart - 60-minute interval.
What never made much sense to me were bullish traders trying to pick bottoms in the Internet stocks when trades like the above eventually develop. See the points marked "Bull" on the above chart? Sure, we may have "missed" the move from 180 to 210, but we also "missed out" on a lot of bullish trades from 280 down to 180. What trader wouldn't be happy with a bullish position at 210 or 220 once some resistance levels were taken out? First sign of trouble here is a break below 240. Currently, 290 isn't out of the question. Traders can also use the INX.X as a measurement of how aggressive or bullish the market is. This chart still looks bullish and tells me there are still some market participants willing to pay higher prices for stocks in this group.
Watch this stock in the Disk Drive group.
Earlier today we mentioned that the DDX.X had "jumped" a hurdle and that sent us scouring the Disk Drive stocks. I came up with Quantum Corp hddg (NYSE:HDD) as a bullish chart. A trade above $12 set off my alert as this is a break of downward trend.
Quantum Hddg (HDD) Chart - last eleven months.
A move above my confirmation level at $12.25 could see bulls come to the table. I'd like to see some volume, but a move to $14 might be in the making. Short-term traders can use today's low of $11.25 as a stop.