The S&P 500 ETF continues it’s dance near all time highs, as financials weigh on the index. The SPY chart below illustrates the “historically significant” narrow range pointed out by many others on the stream. Sector rotation plays a part, money flow affects individual sectors.
The post election rally has consolidated gains in a 24 day horizontal range. The lack of a downside break of this support area lends credence to using these elevated levels as a base. If this base were to fail, then we would reassess our comments. Bullish above or bearish below.
Monitoring volume is one way of observing potential bullish and bearish catalysts, in addition to sentiment and breadth. As you know, we monitor these two with TICK cumulative and NYMO, respectively.
We enabled MFI in the lower panel in the chart above to assist with our analysis. Note we are nearing an inflection zone, where prices bounced previously. There is a small divergence as well, which we are less concerned with due to the lack of volume.
The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure, the key word being pressure. MFI is also known as volume-weighted RSI. Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling).
Nasdaq 100 – Top 10 Holdings as of May 31st, 2015
- Apple (AAPL) – 14.60%
- Microsoft (MSFT) – 7.40%
- Amazon (AMZN) – 3.84%
- Google (GOOG) Class C – 3.50%
- Facebook (FB) – 3.41%
- Gilead Sciences (GILD) – 3.22%
- Intel (INTC) – 3.14%
- Google (GOOGL) Class A – 3.01%
- Cisco (CSCO) – 2.88%
- Comcast Corp (CMCSA) – 2.40%
Note MFI is climbing, so one could deduce that focusing on Nasdaq and the technology related shares above, would produce better returns at the present time. Nasdaq shows a bullish trending SOTEMA.
If the Nasdaq is technology weighted, is makes sense to watch technology and consumer discretionary sectors, XLK and XLY respectively.
XLK Candidates and FANG
The FANG stocks will assist price action. Netflix is higher (+7%) this morning, posting earnings after the bell on Wednesday.
XLY Consumer Discretionary
Amazon, Tesla and Apple, among others are part of the consumer discretionary group. Both AMZN and TSLA are higher pre-market. Apple is red pre-market and still trading near 52 week highs. This is one reason that we discussed the bullish action in XLY yesterday.
Positioning your trades in sectors that are experiencing additional “money flow” (MFI) increases your odds of success. We suggest adding this indicator to your tool box for future analysis.
Happy Trading – Vinny
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