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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The sell-off that began on Friday, followed through to the downside yesterday. After selling off 12.65 points on Friday, the S & P closed 27.11 points lower yesterday.
The day ended up closing at 3,113.87. This put the market about 11 points under the major 3,125 level that had been the target for this market.
As I have mentioned a few times when the market takes out a key level, it tends to move up to the next minor level and that is where profit-taking comes in.
The minor level above 3,125 is 3,164.08 and the S & P got as high as 3,154.26 at the top. So, it got to within 10 points of the next minor level before the sell-off began.
The question is where should support come in?
And I would expect support at the minor level under 3,125. That price level is 3,085.95. At this point, the market is about 30 points away from the level where I would expect support.
But, I do expect another rally for this market. And remember that the market is trading above the upper band on its monthly chart. That price level is 3,048 and should be support.
Yesterday's daily price bar closed at 9% of the bar, so the odds heavily favor the low being violated before the high.
The range also expanded to the downside. Yesterday's range came in at 33.53 and the daily average true range now reads 20.21.
This was the first day that the average true range ticked higher. And the ranges are expanding to the downside, which confirms the bearishness in this run.
The market has been warning us now for a while that a pullback was immiment.
There were a couple of reasons.
The first of course is that the daily ranges had been contracting as the market moved higher. Price conviction was not confirming the move higher.
The second reason is that the VIX was back down to its 12.50 long term support level.
And the sentiment indicators were overbought. The two sentiment readings I look at are the bullish % index and the percent of stocks above their 200 day average.
Both can be plotted on stockcharts.com, which is the charting service I use.
The symbol for the bullish % index is $BPSPX. And Friday it peaked at 74%.
The symbol for the stocks above their 200 day average is $SPXA200R. And it peaked at 77.76% on the 27th.
Generally, readings above 75% indicate the market is overbought and ripe for a pullback.
These indicators are typically not perfect in timing the exact reversal, but they do signal a warning that you want to lighten up on longs.
The idea is to combine all these factors to help confirm if a change in direction is coming.
Pre open, the S & P is trading about 22 points lower, so the low should be violated right off the open.
COUP reported last night and it trading about $7 lower.
Earnings do continue this week. CRM reports today after the close. RH reports Wednesday after the close.
DOCU and ULTA report Thursday after the close.
Pre open, the S & P is trading about one point higher.
Here are the Key Levels for the Markets:
$VIX:
Major level: 21.88
Minor level: 21.10
Minor level: 19.53
Major level: 18.75
Minor level: 17.97
Minor level: 16.41
Major level: 15.63
Minor level: 14.85
Minor level: 13.28
Major level: 12.50 <
Minor level: 11.72
Minor level: 10.16
Major level: 9.38
The VIX closed out at 14.91 yesterday. This was a spike of over 18%.
Certainly, a move up to 15.63 is the next objective. The VIX can move as high as 18.75 without affecting the uptrend.
13.28 should now be support.
SPX:
Minor level: 3,164.08
Major level: 3,125.00 < Hit
Minor level: 3,085.95 ***
Minor level: 3,007.85
Major level: 2,968.80
Minor level: 2,929.73
Minor level: 2,851.58
Major level: 2,812.50
Minor level: 2,773.45
Minor level: 2,695.35
Major level: 2,656.30
The S & P closed at 3,113.87. With a projected open around 3,092, watch the 3,085,95 level for support. I would expect support to come in at that level.
And this is the key level at the moment. Two closes under 3,085.95 and the
S & P should continue down to 2,968.
On the upside, the 3,125 level should now be resistance.
QQQ:
Major level: 206.26 <
Minor level: 205.48
Minor level: 203.91 **
Major level: 203.13 HIT
Minor level: 202.35
Minor level: 200.78
Major level: 200.00
Minor level: 199.22
Minor level: 197.77
Major level: 196.88
The QQQ closed at 203.00. The QQQ closed under the major 203.13 level. Now the key on the downside is 202.35. Two closes under this level and the QQQ should drop to 200.
203.91 should now be minor resistance.
Technical resistance should be around the 203.50 area as well.
IWM:
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 160.19. At this point, if the IWM closed under 160.94 today, it should drop to 156.
162.50 should now be resistance. And technical resistance is around 160.50.
TLT:
Major level: 143.75
Minor level: 142.97
Minor level: 141.41
Major level: 140.63 <
Minor level: 139.85 **
Minor level: 138.28 <
Major level: 137.50
Minor level: 135.84
Minor level: 132.81
Major level: 131.25
The TLT closed at 138.31. The TLT took out the minor 138.28 level. Watch to see if it breaks under the major 137.50 level.
The 139 to 140 area should still offer technical support.
GLD:
Major level: 143.75
Minor level: 142.97
Minor level: 141.41
Major level: 140.63
Minor level: 139.85
Minor level: 138.28 **
Major level: 137.50 <
Minor level: 136.72
Minor level: 135.16
Major level: 134.38
The GLD closed at 137.79. The GLD did manage to close above the major 137.50 level for the third time.
The next level is 138.28. Two closes above this level and the GLD should head up to 140.63.
The key level is 134.38 on the downside. If the GLD has two closes under this level, it could drop to 125.
Short term, there is technical resistance at 139. And technical support is around 136.
XLE:
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
Minor level: 55.86
Minor level: 55.08
Major level: 54.69
The XLE closed at 58.89. The XLE has now closed just under the major 59.38 level. It will need to clear this level to head higher. It closed flat on the day.
At this point, if the XLE has two closes above 60.16, it should move up to 62.50.
58.60 should now be support. And the 59.50 area should offer technical resistance. It will need to clear this area to head higher.
AAPL:
Major level: 281.25
Minor level: 277.35
Minor level: 269.54
Major level: 265.63 HIT!
Minor level: 261.72
Minor level: 253.91
Major level: 250.00
Minor level: 246.88
Minor level: 240.63
Major level: 237.50
Apple closed at 264.16. Apple will need two closes above 269.54 to move higher.
Watch the 261.71 level on the downside. It should be support until violated. And two closes under it and Apple should drop to 250.
Technical support should be in the 262 area.
WATCH LIST:
Bullish Stocks: AMZN, LMT, ROP, HUM, SHOP, NTES, ADBE, FLT, DPZ, BDX, LULU, VRTX, NVDA, FB, BABA, RH, PEN, V, DECK, ROKU, COUP
Bearish Stocks: AAP, TAP, IRBT, FL, CHL, OXY, IRM
Be sure to check earnings release dates.
