Short-term, the risk remains high, given the myriad of overbought conditions and negative technical divergences present, of which the probabilities still favor a correction of -5% to - 10%. Any intermediate-term top at least months off into the future. Hence, we’re still prepared to buy after a decline.
Worrisome Relative Ratios Given Their Weakness
Russell 2000/ S&P 500 (IWM/SPY) S&P Industrials (XLI/SPY) S&P Materials (XLB/SPY) Steel/S&P 500 (SLX/SPY) Copper/S&P 500 (JJC/SPY).
Potential Long Trades
√ Oil Service (OIH) - The 200-dema/40-dema cross is proving resistance with trendline support violated in bearish fashion. And, OIH continues to lag badly. At some point, it shall begin the process of “catch-up” in both absolute as well as relative terms.
√ Latin America (ILF)/Japan (EWJ) - Prices are consolidating at the 320-dma and above the 400-dema respectively and tenatively. Further gains will be seen if the recent highs are taken out.
√ Silver (SLV:AGQ) - Prices have begun to rise with their 14-day model from oversold levels; but a breakout above the $31.5-to-$3230 zone would be preferable for taking a long position.
Potential Short Trades
√ China (FXI) - The weekly model has turned lower two weeks prior with prices failing at the 200-week moving average; this is bearish for further declines.
√ Consumer Discretionary (XLY) / Retial )RTH) - Prices have risen indiscriminately; and are far above their medium-term moving averages. Look for mean reversion lower.
To read the entire report, please click on the PDF file below.
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ETF Playbook : March 29, 2012
Current Bias: "Defensive To Bearish"
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