While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to 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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I mentioned a while back that I felt the target for this market was down to 2,500. And Friday put the S & P 500 within 100 points of the objective.
I do think the good news will be that there should be strong support for the
S & P 500 at that level. And that price level is within 35 points on the extreme bollinger band on the daily chart.
Lower band is 2,535 and how the market trades around that level should help us to determine if this area becomes a major pivot low.
I do want to point out that the Chaikin Money Flow on the daily chart is positive. It does not mean that it will remain positive when the market gets to 2,500.
But, I point this out because the last time the market fell under the lower band on the daily chart was back in February of 2016. And the money flow was positive back then as well.
That pivot back in February of 2016 proved to be the last major low for the market before it ran to all-time highs.
Another thing I want to point out is this. The first time the market fell under the lower band was in August of 2015.
From that point, it rallied to around the midband on the daily chart. And dropped again to retest the lower band.
I bring this up because this is generally the pattern when price breaks under the lower band. The pattern is quite consistent across all timeframes from intra day charts to longer term charts.
That's why I say we should have an idea of what the S & P 500 will do after it hits the lower band.
How can I be so confident the market will go there?
I could be wrong, but it amazes me at times how the bands become magnets for price.
The other question at this point is where is the Santa Claus rally?
Quite frankly, I would like to see a rally because it would be an opportunity to short the market.
And I was anticipating a rally up to the 2,695.30 level. And that area would be where shorts should be established.
The S & P 500 got as high 2,670 before this leg of the selloff.
Now the market is down to the major 2,597.70 level. In fact, Friday's low came in at 2,593.84, or about 4 points under the level, before it rallied to close at 2,599.95.
Friday ended up closing 50.59 points to the downside. The intra day range was only 41.23 points due to the bearish gap open.
And the close percentage was 15% which suggests the odds of violating the low before the high is around 85%.
For the week, the S & P 500 closed 33.13 points to the downside. The range for the week was 102.21 points. This exceeded the weekly average true range by about 11 points.
And the weekly close percentage was 16.4%. So, the odds favor violating last week's low before the high.
The resistance levels from last week's weekly price bar are in the 2,615.41 to 2,634.34 area.
I know it is rather wide this week, but you have to watch to see if the 2,615 area holds as resistance. If it can't, a move up to 2,634 would be possible.
The resistance level from Friday's daily bar is in the 2,615 area. So, I would expect strong resistance around that level.
A final comment about last week is that both the S & P 500 and the VIX closed to the downside. This, of course, is a divergence. And the last time this happened was back in the early part of May.
And at that time, it did signal a short term bottom.
This divergence usually warns us that a change in direction is coming.
Continue to monitor the levels as I mentioned above.
Here are the Key Levels for the Markets:
$VIX:
Major level: 31.25
Minor level: 29.69
Minor level: 26.56
Major level: 25.00
Minor level: 23.44
Minor level: 20.31 **
Major level: 18.75 <
Minor level: 17.19 **
Minor level: 14.06
Major level: 12.50
The VIX closed at 21.63. The 20.31 level continues to hold as support.
The key for today is if the VIX can close above 20.31 for a second day. If it can, it would suggest a test of 25.
If 20.31 does not hold, I would expect a drop to 18.75.
On the upside, minor resistance is at 21.88. If the VIX can clear 21.88, it would also help to confirm a move higher.
SPX:
Minor level: 2,756.33
Major level: 2,744.10
Minor level: 2,731.90
Minor level: 2,707.50
Major level: 2,695.30
Minor level: 2,683.10
Minor level: 2,658.70
Major level: 2,646.50
Minor level: 2,634.30
Minor level: 2,609.90
Major level: 2,597.70 <<
Minor level: 2,585.48
Minor level: 2,561.03
Major level: 2,548.80
The S & P 500 did hit the major 2,597.70 level. It actually took it out by about 4 points before rallying to close just above it.
This now suggests that 2,609.90 should be resistance. And to drop to 2,548.80, the market will need two closes under 2,585.48.
The next minor level on the downside is 2,634.40. Two closes under 2,634.40 and the S & P 500 should drop to 2,597.70.
2,627 is a minor support level. A break under this level would suggest a drop to 2,602.
Short term charts remain bearish, so long trades should be considered countertrend.
Having said that, the S & P 500 is oversold short term. I would not be surprised if we get a bounce here. But, don't think this will be a major Santa Claus rally.
Look for minor support at 2,602.50. If the market can hold this level, it could bounce.
On the downside, I don't see the S & P 500 breaking under 2,558,60 on this drive.
QQQ:
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
The QQQ closed at 161.08. It closed down 4.02. It broke under the major 162.50 level.
The next level on the downside is 160.94. Two closes under this level and the QQQ should drop to 156.25.
Short term, 159.38 is a key level. If the QQQ does close under this level, I would expect a drop to 150.
IWM:
Minor level: 151.56
Major level: 150.00
Minor level: 148.44
Minor level: 145.31
Major level: 143.75 < <
Minor level: 142.19 **
Minor level: 139.06
Major level: 137.50
Minor level: 135.94
Minor level: 132.81
Major level: 131.25
The IWM closed at 140.61. It closed down 2.05 on the day.
Two closes under 142.19 suggest a drop to 137.50.
At this point, resistance should be at 143.75 and 150. But, short term the IWM is oversold. It may drop to 137.50 before it bounces.
The IWM is in a downtrend on its daily chart, so consider any rally a bounce in a bear market.
The lower band on the daily chart is 138 and the IWM is about 2 points above it. Definitely, a level to watch.
TLT:
Major level: 121.88
Minor level: 121.49
Minor level: 120.70
Major level: 120.31
Minor level: 119.92
Minor level: 119.14
Major level: 118.75
Minor level: 118.36 **
Minor level: 117.58
Major level: 117.19
Minor level: 116.80
Minor level: 116.02
The TLT closed at 118.48.
The TLT is quickly testing the midband on the daily chart. That price level is 117.70. It should be support. So, a break under it would indicate the TLT should pull back more.
117.97 is minor support. If the TLT does not hold this level, I would expect a pullback.
GLD:
Major level: 121.88
Minor level: 121.10
Minor level: 119.53
Major level: 118.75 <
Minor level: 117.97 **
Minor level: 116.41
Major level: 115.63 <
Minor level: 114.85
Minor level: 113.28
Major level: 112.50
The GLD closed at 117.06. Biased for a drop to 115.63.
Minor support is at 116.41. Watch to see if the GLD bounces here. If it can't, you should head lower.
XLE:
Major level: 68.75
Minor level: 67.97
Minor level: 66.41
Major level: 65.63
Minor level: 64.85
Minor level: 63.28
Major level: 62.50 <
Minor level: 61.72 **
Minor level: 60.16
Major level: 59.38
Minor level: 58.60
Minor level: 57.03
Major level: 56.25
The XLE closed at 62.09. This was the first close under the major 62.50 level.
Watch for consolidation around 62.50. If it does, I would expect a short term bounce.
To move down to 59.38, the XLE will need two closes under 61.72.
The lower band on the daily chart is 60.98. And the XLE is just above it. Watch this level to see if it holds as support.
FXY:
Major level: 85.94
Minor level: 85.75
Minor level: 85.36
Major level: 85.16
Minor level: 84.97
Minor level: 84.58
Major level: 84.38 <
Minor level: 84.18
Minor level: 83.79 **
Major level: 83.59
The FXY closed at 84.26. 83.79 should be support. Watch to see if this holds. If it can't I would expect a drop to 83.59.
Two closes under 83.98 would confirm a move down to 82.
The FXY is oversold and I do expect a bounce. If the FXY can move above 84.38, it should bounce.
AAPL:
Minor level: 182.81
Major level: 181.25
Minor level: 179.69
Minor level: 176.56
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 <
Apple closed at 165.48 on Friday. It was down $5.47 on the day. Major support is at 162.50. If Apple breaks under this level, it should continue lower.
Watch to see if Apple can get above 165.63. If it can, it should bounce.
Short term is oversold.
Short term charts remain bearish.
WATCH LIST:
Bullish Stocks: TSLA, PANW, CRM, CASY, DATA, KMB, CTXS, HSY, YUM, AZPN, GDOT, D, GRMN, LNG, CIEN
Bearish Stocks: CHTR, SPY, DIA, FDX, FLT, STZ, GS, WEX, LH, HON, UTX, CXO, RACE, JPM, FANG, DGX, ALL, ABC
Be sure to check earnings release dates.
