While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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Yesterday saw another massive one day move in the markets. Starting to repeat myself with this pattern. The S & P 500 closed 100.18 points lower, giving back most of the gains from Wednesday. This after a bearish gap open of 54.42 points.
The range for the day ended up at 83.21 points. The range once again exceeded the daily average true range, which is now 78.89. A daily range that exceeds the average true range is bearish if it closes lower.
And the S & P is back to the midband on its daily chart. The midband is 3,012 and yesterday closed just above it. The day closed out at 3,023.94. And yesterday's low went to 2,999.83, or about 12 points under the midband.
And pre open, the S & P is trading about 71 points lower as I write this.
This projects to an open around 2,952 or about 60 points below the midband. This would suggest that the midband should be resistance on a rally.
And as you know, the objective for the S & P once the midband is violated is to the lower band.
The lower band is 2,600, which is about 400 points below where the S & P closed yesterday. As this is a midpoint, that tells us that the S & P has already dropped about 400 points off the top.
Quite frankly, the coronavirus is roiling the markets and I believe it will continue to.
When 'normal' measurements cannot contain the markets, you know that the markets are abnormal.
For example, the cruise lines and the airlines are trading well below their lower band on their daily charts.
And as you know, these bands should contain 99.9% of the price action.
Take RCL as an example. The stock closed yesterday at 65.78. The lower band is 87, so it closed yesterday about $22 under its lower band.
And the first day it closed under the lower band was on February 25th when it closed at 88.67. Since then, it has dropped about $22 in 7 days.
I do want to point out that RCL topped out at $133.99 on January 17th. And at that time, it was right up against its upper band on the daily chart.
In less than 2 months, the stock has been cut in half.
The move from the upper band to the lower band is not that unusual. In fact, that is usually how a stock will trade. What is unusual is how overextended it has become on the downside.
The other side of this is that the more oversold it becomes, the bigger the bounce should be when it does. In other words, this will create opportunity. The question is when?
I don't think you will see that until we begin to hear positive news about the coronavirus.
Back to the market.
Yesterday's daily bar closed out at 29% of the range which does suggest the low will be violated. And based on the pre market trading, it should happen right off the open.
Resistance from yesterday is in the 3,041 area.
In taking a look at how the weekly price bar is shaping up, what is rather shocking is that this week's weekly price bar is forming an inside day.
Every day this week has had a daily range greater than 80 points. The largest range was on Tuesday when it was 160.09 points.
But, with an inside day, which is a contraction, we expect an expansion.
Last week's low was 2,855.84 and the low this week is 89.35 points above it.
The projected open should be about 18 points above last week's low.
Watch last week's low on a continued sell-off. If last week's low is violated, it would set up a different price expectation than an inside bar.
The midpoint of the weekly price bar is 3,041, which is exactly the resistance level from yesterday's daily bar.
A close under the midpoint would be bearish.
COST reported last night and is trading about $5 lower.
Here are the Key Levels for the Markets:
$VIX:
Major level: 40.62
Minor level: 39.84 **
Minor level: 38.28
Major level: 37.50
Minor level: 36.72
Minor level: 35.16
Major level: 34.38
Minor level: 33.60
Minor level: 32.03
Major level: 31.25
Minor level: 30.48
Minor level: 28.91
Major level: 28.13
Minor level: 27.35
Minor level: 25.78
Major level: 25.00
The VIX closed at 39.62, closing 7.63 points higher on the day. The VIX closed just under the major 40.62 level. Watch this level today.
The upper band on the 60 minute chart is just above the major 40.62 level. That level is 41.79. Watch to see if the VIX can clear this level.
The 36 area should provide technical support.
S & P 500:
Major level: 3,427.40
Minor level: 3,398.35
Minor level: 3,320.25
Major level: 3,281.20
Minor level: 3,242.15
Minor level: 3,164.08
Major level: 3,125.00 <
Minor level: 3,085.95 **
Minor level: 3,007.85
Major level: 2,968.80
Minor level: 2,929.75
Minor level: 2,851.65
Major level: 2,812.50
The S & P closed at 3,023.94. Yesterday's high was about 3 points under the minor 3,085.95 level.
This now suggests that if the S & P closes under 3,085.95 today, it should drop to 2,968.80. And the projected open should be below it, so it would be resistance on a bounce.
2,948 is the lower band on the 60 minute chart. Watch this level this morning.
The 3,030 area should offer technical resistance.
QQQ:
Major level: 221.85
Minor level: 221.07
Minor level: 219.50
Major level: 218.75
Minor level: 217.97
Minor level: 216.43
Major level: 215.65
Minor level: 214.87
Minor level: 213.30
Major level: 212.50
Minor level: 211.72 **
Minor level: 210.16
Major level: 209.39
The QQQ closed at 211.59. Watch the 211.72 level. A close under this and the QQQ should drop to 209.
The lower band on the 60 minute is 203. Watch to see if this can hold. The 211 area should offer resistance.
IWM:
Major level: 175.00
Minor level: 173.44
Minor level: 170.31
Major level: 168.75
Minor level: 167.19
Minor level: 164.06
Major level: 162.50
Minor level: 160.94
Minor level: 157.81
Major level: 156.25
Minor level: 154.69
Minor level: 151.56 **
Major level: 150.00 <
Minor level: 148.44 **
Minor level: 145.31
Major level: 143.75
The IWM closed at 147.32. This now suggests that if the IWM closes under 148.44 today, it should drop to 143.75.
The IWM is right at the lower band on the 60 minute chart. That price level is 145.12.
Of course, a drop under the lower band would suggest we will have another retest of it after it closes back inside it.
The 150 area should now offer technical resistance.
TLT:
Major level: 159.38
Minor level: 158.60
Minor level: 157.03
Major level: 156.25
Minor level: 155.48
Minor level: 153.91
Major level: 153.13
Minor level: 152.35
Minor level: 150.78
Major level: 150.00
Minor level: 149.22
Minor level: 147.66
Major level: 146.88
The TLT closed at 158.52. The upper band is 157.37 and yesterday's close took out the upper band.
The TLT is trading about 6.50 higher pre open. Watch for support at the upper band.
The upper band on the 60 minute chart is 159.60 and the TLT should open above it. It would be support until the TLT closes under it.
GLD:
Major level: 159.38
Minor level: 158.60
Minor level: 157.03 **
Major level: 156.25
Minor level: 155.47
Minor level: 153.91
Major level: 153.13
Minor level: 152.35
Minor level: 150.78
Major level: 150.00
Minor level: 149.22
Minor level: 147.67
Major level: 146.89
Minor level: 146.11
The GLD closed at 157.49. The GLD took out 156, as expected.
A close above 157.03 today and the GLD should test 159.
158.17 is the upper band on the 60 minute chart. This should be resistance. But, if the GLD takes it out, it should be support.
153 should be technical support.
XLE:
Major level: 56.25
Minor level: 55.47
Minor level: 53.90
Major level: 53.12
Minor level: 52.34
Minor level: 50.78
Major level: 50.00
Minor level: 49.22
Minor level: 47.65
Major level: 46.88
Minor level: 46.09 **
Minor level: 44.53
Major level: 43.75 <
The XLE closed at 45.03. Still trading well under the lower band on the daily chart, which is 49.09.
A close today under 46.09 and the XLE should test 43.75.
The XLE is still above its lower band on its 60 minute chart. That price is 42.71 and should be support.
The 46 area should be resistance.
AAPL:
Major level: 325.00
Minor level: 321.88
Minor level: 315.63
Major level: 312.50
Minor level: 309.38
Minor level: 303.13
Major level: 300.00
Minor level: 296.88 **
Minor level: 290.63
Major level: 287.50 <
Minor level: 284.38
Minor level: 278.13
Major level: 275.00
Minor level: 271.88
Apple closed at 292.92. A close today under 296.88 and Apple should drop to 287.50.
The lower band on the 60 minute chart is 276 and should offer support.
A drop under 288 and Apple should head lower.
WATCH LIST:
Bullish Stocks: REGN, TLT, EVBG, AMN, GILD, NTRA, PDCO
Bearish Stocks: BA, ALGN, VRSN, WDAY, MMM, FDX, WIX, EEFT, TWLO, PYPL, EXPE, YUM, RCL, ZEN, CHRW, CXO, DNKN, W, PLCE
