Markets were harpooned Thursday as the Nasdaq lost almost 2% to the downside and the S&P 500 fell 1.6%. Both theses major benchmarks undercut their 50 day SMAs and as we wrote in the opening paragraph of Wednesdays Game Plan this is now the 4th piercing of the 50 day SMA for the S&P 500 this year. Each prior time before today the damage was 2%. Each of the last three times also saw the following session drop with the days of 1/27 down .5%, 4/11 down .9% and 8/1 lower by .3%. Going into Friday the Nasdaq is down 2.5% for the week and the S&P 500 declining 2.2%. No sector was spared in Thursdays selloff and not surprisingly energy and materials were among the worst. The XLE today lost its 200 day SMA and is approaching the round 90 handle, but the XLB chart is still holding up, but today fell beneath the very round 50 handle. It is most likely holding up somewhat due to top component DD’s 10% jump last week in double average weekly volume. DD is UP going into Friday showing very good relative strength. The XLB has formed a bearish rising wedge whose lower line aligns with its 50 day SMA. When two potential setups overlap it enhances the success rate of the trade. Its MACD looks ready to complete a bearish crossover as well. Let the price guide your actions and look to short this ETF with a sell stop below 49.60.
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