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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Apparently, the Fed did nothing to stem this selloff yesterday. In fact, at 2:00 EST, the S & P 500 was trading at 2,585.29.
Within an hour and one half, the S & P 500 dropped to a low of 2,488.96.
This was a swing of almost 100 points in an hour and one half.
You certainly recognize that the downside objective of 2,500 was hit. In fact, it was taken out by about 12 points.
The question for us now is this ... what do we expect next?
We were biased for a move down to 2,500 based on the fact that the S & P 500 had two closes under 2,546.60. This put the downside objective to the 2,500 level.
And most important is the fact that the S & P 500 closed under the lower band on the daily chart.
The lower band is now 2,526.60. And yesterday, the market closed about 20 points under it.
This now sets up price expectations we can anticipate. On yesterday's webinar, I reviewed some charts where price had traded under the lower band. You can download the powerpoint in the members area.
Essentially, the fact that the market is under the lower band tells us that it is oversold in the short term.
And we should expect a bounce. But, it also tells us to expect a retest of the lower band once price does trade back inside the lower band.
Based on the resistance levels I share, I am officially adjusting my downside objective.
As you know, I was calling for a drop to 2,500. And now that it has been hit, I need to adjust the target lower.
The new target becomes 2,250.
A drop to 2,250 would mean a 23% correction off the top.
But, we will have lower levels to help us confirm if the market will drop to 2,250. The key one will be if the market can close under 2,437.50 for two days.
That should be the confirmation that the market will hit the lower downside target.
Obviously, with lower targets, any long trade should be deemed countertrend.
So, if you are trading on the longside, trading the expected bounce, I would suggest limiting trade size. Another way to protect yourself is to add put protection when you do go long.
I don't want to sound like an alarmist, but this is how I am interpreting the market at the moment.
And there are a lot of stocks trading underneath their lower extreme bolinger bands on their daily charts. In fact, in running a scan yesterday after the close, I show 336 companies with that price formation.
Quite frankly, I cannot recall seeing that many stocks in this oversold condition.
Only the future will tell us how prophetic this prediction becomes.
In closing today, I do want to mention that both the S & P 500 and the VIX closed flat on the day. This comes a day after they both closed to the upside.
And with such a large bearish candle, I would expect the VIX to have jumped higher. But it did not happen.
Quite frankly, this is so uncommon that I really do not know how to interpret this.
The only comment I can make is that these divergences usually precede a market turn.
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 25.58. It closed flat for the day. And as I said above, this is really quite rare.
The next level on the upside is 26.56. I would expect resistance there. A break above it and the VIX should head higher.
23.44 should be support on the downside.
SPX:
Major level: 2,578.10
Minor level: 2,558.58
Minor level: 2,519.53
Major level: 2,500.00 HIT!
Minor level: 2,484.38 **
Minor level: 2,453.13
Major level: 2,437.50 <<
2,500 level hit. To move higher, the S & P 500 will need two closes above 2,519.53. And to move lower, two closes under 2,484.38.
I do expect a bounce because of how oversold the market is.
As you can see, the levels have widened due to the volatility.
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
Minor level: 154.69 **
Minor level: 151.56
Major level: 150.00
The QQQ closed at 154.53. It is now within 5 points of the 150 level.
And if the QQQ closes under 154.69, the downside does become 150.
At this point, 162.50 and 159.38 should be resistance.
The QQQ is above the lower band which is 148.
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 134.00. It closed down 2.85 on the day.
And like the S & P 500, it is trading under the lower band which is 136.63.
A close today under 135.94 and the downside objective becomes 131.25.
TLT:
Major level: 123.44
Minor level: 123.05
Minor level: 122.27
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
The TLT closed at 121.18. The TLT took out 120.31 and is almost at 121.88.
120.31 should offer support.
The daily chart is close to crossing into an uptrend.
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 117.43. The GLD hit the upside target of 118.75 before selling off.
A close today under 117.97 and the GLD should drop to 115.63.
Resistance is now at 118.75.
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 continues to drop and closed under its lower band on the daily chart. If closed at 58.82 and the lower band is 60.45.
This tells us to expect a retest of the lower band once the XLE does bounce.
59.38 is a key level for the XLE. Two closes under 59.38 and the XLE could drop as low as 50.
The XLE is oversold.
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 84.83. The question is what level will the FXY fail at?
Perhaps the 84.58 is the one.
Look for minor resistance at 84.97.
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 160.89 yesterday. With a break under 162.60, I am now looking for a downside objective of 150.
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.
