Watching the Financials in a Rangebound Market

As we head into a new week, the key word to describe this market is "indecisive". Neither the bulls nor bears have been able to establish momentum during the past two weeks, leaving market participants in a wait-and-see mode. The major index charts remain in a bullish orientation, with higher lows and higher highs and price sitting above 200 day moving averages. At the same time, there seems to be a lack of news to drive the market higher.

On one hand, should bears fail to follow through on last week's selling, bulls could gain confidence and initiate another leg up. Last weekend I posted some critical price levels for buy signals on index and sector ETF's. I still have alerts at these same levels.

Looking in the other direction, I do not think the underlying economic realities support current prices. I am holding some core short positions (DTG, SAH, SYMC, OFG, URE, FDML, DDR), which I will hold as long as we do not break above the critical levels mentioned above. I am also watching XLF closely, since the financial sector is central to this crisis. Looking at XLF, price broke down out of a wedge, and then found support at the 50 day moving average. It is now trading at the underside of the wedge trendline, and just below the 200 day moving average. All of these factors indicate we are at an important juncture for the financials. We can gain some valuable insights by watching how XLF reacts to this confluence of support/resistance levels.



Looking at the transports, we can see price formed a double-top, followed by distribution. This would appear to be a bearish signal, but price is still trading between two major moving averages. A break below 55.00 would make a new low, and provide a convincing sell signal.



Going into Monday, futures appear weak, and indexes are approaching support levels. Here are a few bullish charts I am watching for today. Note that strength in medical and gun stocks during summer trading does not mean much for the broader market.

- MEDX



- ISRG: I already have this one.



- CTDC: ditto



- TRAK



- RGR



- WYE



- FIRE



And for some current short holdings. Note the magnitude of the move off of lows for each of these stocks, most of which do not have stellar fundamentals.

- DTG



- FDML



- URE: Given the dynamics of ulta ETF's (they will all gravitate lower over time), and the overvaluation of real estate stocks, this seems like a sure thing, although it may require patience. I will add short on strength, assuming I can find the shares.



- SAH: As you can tell from this short list, I do not buy into bullishness in the automotive sector.



- OFG