Monday, April 7, 2014
Stocks In Bear Warning. Bonds & Gold Gain.
Early morning rally in stocks was met with renewed strong selling. All indices lost over 1 percent with NASDAQ and the Russell 2000 leading the markets…lower. Whereas NASDAQ is getting close to finding some support, I believe the large caps are just getting started in selling. The very broad Russell 3000 index today closed below its 50 day moving average (DMA) - this is a bearish development for the broad market.
$VIX spiked today and our Market Breadth Index, the $VMBI, has dropped into bearish territory. We are once again issuing a Bear Warning. A close below the 50 DMA for $SPX would trigger a Bear Confirmation. There is decent support in the $1837-1839 area for $SPX, should that give, next stop would be $1820-1800 area. We have opened a hedging position by purchasing UVXY to play the $VIX rise.
TLT continued its rally. TLT is showing multiple bullish characteristics: it’s above the 50 and the 200 DMA, the 50 DMA is sloping up, Ultimate Oscillator is not overbought, positive On Balance Volume, and about to have a bullish MACD crossover. As I stated before, I am bullish on TLT and expect prices around $115.
EEM had an Inside day (entire today’s price range is within yesterday’s price range). Inside days presage a strong move…down or up. The emerging markets ETF had a stellar run that started March 20 with over 10% gain. EEM is currently at resistance from the late December peak. EEM is also overbought, so a pullback to the 200 DMA or even lower is possible. This pullback would likely be a good buying opportunity.
Gold also had an Inside day. A close above $1307.50 would strongly confirm the rebound in gold prices. We are long GDX and NUGT and will add to both positions should gold close above $1307.50
IYR is challenging early March highs. It did put in an intraday high at $68.70, but pulled back. A close above $68.54 would open a possibility of retesting May 2013 highs.
Oil is digesting, likely before a push higher. Next resistance is at $102.24
Natural gas is challenging March high at $4.59. A close above it, may lead to a retest of the 50 DMA, currently at $4.78
Bottom line: Rotation out of stocks and into safety assets is continuing.
Open positions: GDX, NUGT, IYR, TLT, DVY (closed), ETV (closed)
Hedging positions: DGAZ, UVXY