Trading From Main Street

[Toni Hansen]

A few random thoughts on sectors:

$XOI.X The oil index bounced strongly Friday off the 100 day simple moving average after a selloff from highs which began last month. The sector is currently oversold and looks like it will hold this support for at least a few more days.

$BTK.X The biotechs which have been strong since about March showed signs of establishing a lower high on the daily charts in last week's session after pulling back strongly to 50 day and 10 week sma support where it has been stalled for nearly two weeks. This high also occurred at Commodity Channel Index resistance at zero. While this index looks to head lower, risk is high as the monthly chart is getting really congested. The trading range over the next few weeks could easily just tighten.

$IIX.X The internet sector is another which pulled off lows made several months ago and in recent weeks has been weakening. It has one set of lower highs and lower lows and is now working on lower high number two. This resistance zone on the daily chart is the same one which held last time (the 10 day sma) and the CCI is also at resistance.

One thing that concerns me about all sectors with this patterns like the inets though is that the weekly and monthly charts are at strong support which suggest that we can easily see a continuation of the trading range throughout the summer with the rally off yearly lows and the current pullback just one section of that trading range.

All in all I would consider using a lot more caution on investments and position trades this summer because when you have patterns like this the risk is much higher. Often they will fall into longer term flags. Given the time frame, this would be on the monthly charts, thus taking quite a long time to work themselves out.