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Today's Technical Outlook 9/29/2014

Sep. 29, 2014 10:43 AM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Market Summary

David Chojnacki, Market Technician

After a big day to the downside on Thursday, the market bounced back on Friday opening to the upside. Equities gained strength in the PM hours and by the close recouped more than 50% of the prior session's losses. The market has been down 4 of the last six sessions and action has been choppy. At the close on Friday, the DJIA gained 0.99%, the S&P added 0.86%, and the Nasdaq100 was up 1.1%. Breadth was decidedly positive, 2.7 to 1, on below average volume. It was another session that volume dropped off on an up day. RSI's inched up and ROC(10)'s advanced with the DJIA and Nasdaq100 moving back into positive territory. For the week, the DJIA was down 0.9%, the S&P slipped 1.3%, and Nasdaq100 lost 1.1%. Small-caps(IWM) continue to lag the major indices and remain below their 200D-SMA. Small-caps and weak internals may be the canary in the coal mine. The VIX lost 5% on Friday to finish at 14.85, however, for the week the VIX was up 22%. Q/E 3 ends next month.

Trading Trends

MAJOR INDICES Short term support and resistance level

DJIA

close 17113

SP500

close 1982

N100

close 4053

17102

17125

1976

1985

4050

4062

17000

17250

1975

1988

4037

4073

16939

17279

1972

1995

4025

4075

16850

17300

1960

2000

4010

4088

16800

17350

1955

2011

4000

4100

17400

1950

2019

3988

4103

17500

1940

2025

3975

4112

1937

2037

3950

4118

1925

2050

DISCLAIMER LANGUAGE -ALL PRICES NOTED IN THIS PUBLICATION ARE AS OF THE CLOSE ON TRADING PRIOR TO

TODAY'S DATE, UNLESS OTHERWISE INDICATED

This publication is neither an offer to sell nor a solicitation to buy any securities mentioned herein. The information contained herein is based on data obtained from recognized sources that are believed to be reliable. Street One Financial LLC (S1F) have not independently verified the facts, assumptions and estimates contained in this publication.

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Data sources include ETF Database, ETFTrends.com, IndexUniverse.com, Google Finance, and Bloomberg data and at times other data sources are utilized. Leveraged, Inverse & Leveraged Inverse Conclusions and Risks 1) Leveraged, Inverse, and Leveraged Inverse (L&LI) ETFs generally capture a high percentage of their expected daily returns, particularly on a net asset value basis. 2) L&LI ETFs are not appropriate for all investors. However, we believe they can be appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period. In strong trending markets, being on the right side of the "trade" with L or LI ETFs can lead to very strong returns. 3) Investors should not expect these ETFs to deliver total returns linked to their benchmarks over any period other than daily. The effects of compounding and the daily re-leveraging or de-leveraging that occurs with L&LI

ETFs can lead to unexpected results over the long term. As a result, we believe longer-term investors should consider regularly rebalancing positions. 4) Trendless markets, particularly those with a high level of volatility, can lead to substantial relative underperformance of L&LI ETFs. 2) Leveraged and Leveraged Inverse (L&LI) ETFs typically utilize futures and equity swap agreements. The use of these derivative instruments increases risk and enhances the possibility of tracking error.

Relative to traditional ETFs, leveraged, inverse and leveraged inverse ETFs typically have higher costs and lower tax efficiency. 3) The effects of compounding can lead to significant deviations from traditional benchmarks over longer time periods. For example, if $100,000 is invested in an index that increases in value by 10% on day one and then decreases in value by 10% on day two, the investment will be worth $110,000 at the end of day one and $99,000 after day two. However, the value of a security that doubles the daily performance of the index would be worth $120,000 on day one and $96,000 after day two. Thus, the index is down 1% after two days, a doubling of which would be down 2%. However, the security attempting to double the return of the index is down 4%. Investors should consider carefully the potential impact over longer periods. MLP and MLP ETF Risks Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity volume risk.

For tax purposes, MLP ETFs are taxed as C corporations and will be obligated to pay federal and state corporate income taxes on their taxable income, unlike traditional ETFs, which are structured as registered investment companies. These ETFs are likely to exhibit tracking error relative to their index as a result of accounting for deferred tax assets or liabilities (see funds' prospectuses). The potential tax benefits from investing in MLPs depend on their being treated as partnerships for federal income tax purposes and, if the MLP is deemed to be a corporation, then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund's value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments; this deferred tax liability is reflected in the daily NAV; and, as a result, the MLP fund's after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked. Commodity ETF Risks Commodity ETFs may be subject to greater volatility than traditional ETFs and can be affected by increased volatility of commodities prices or indexes as well as changes in supply-and-demand relationships, interest rates, monetary and other governmental policies, or factors affecting a particular sector or commodity. Currency ETF Risks Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. ETFs mentioned at times may have material exposure to small cap and/or international securities that may have higher levels of risk and volatility than other ETFs.

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Major Economic Reports Today

Personal Income/Spending-8:30am PCE Prices-8:30am Pending Home Sales-10:00am

Long term trend continues with an upside bias as the major indices remain above their 20 week moving average and other key long term technicals. The Nasdaq100 and S&P, however, have been unable to move through recent highs and formidable resistance at 4125 and 2012, respectively. Short term, the S&P broke below the recent range last week and technicals weakened, threatening upside bias. The major indices have bounced off their 50D-SMA's several times. Near term, with MACD's below signal and SMA's below 20, bias is moving to the downside. Recent choppy action is another indicator of a topping formation. With weak internals we remain cautious at these levels near term. Europe is lower in early trade as China weighs on the market. US Futures are moderately lower.

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