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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As a guest host on John's webinar yesterday, he asked me about the market. And I reiterated that I felt back in December that the market could move up to 2,734.40.
There were two reasons for this.
The first is that was the approximate level of the midband on the daily chart. And the second reason was the fact that 2,734.40 was a major resistance level.
And the daily high for the last two days was about four points above these levels.
The question now is what should the market do?
As I mentioned yesterday, there are really only two options.
Either the midband holds as support or it fails and we head lower.
I would want to see a bearish high-volume close under the midband in order to initiate a short position.
Pre open, the S & P 500 is trading about 16 points lower, so the market should open under the midband. Actually, if this trading held up until the open, it would open about 15 points below the midband.
This would suggest that the midband of 2,730.38 would be resistance on a rally.
The 60 minute chart is still in an uptrend, and is strongly bullish, so I do expect another rally if the market does fail here.
I may be wrong, but this is how I am reading the market at the moment.
Switching gears, I do want to mention that the buybacks for January have been posted in the members' area.
As you may know, or not know, every month I post a list of stocks that have announced buybacks.
Buybacks can be a compelling reason to consider investing in those companies.
Why?
Actually, it is rather simple. If a company is committed to buying back their shares, you know they are committed to increasing shareholder value. And if they have the extra cash available to do this, it tells you immediately that the company is performing well.
Unless of course, there is financial engineering involved. What I mean by that is that a company borrows money at a low rate and uses it to buy back shares.
This can happen, but in the majority of cases, it doesn't.
Do you just go out and buy shares in a company announcing a buyback?
No, of course not. You still want to apply our technical indicators to help you time your entry.
Let me give you an example.
CMI announced a buyback of $2 Billion dollars on October 9, 2018. At that day, CMI closed at $149.69.
Had you bought right then, you would have lost because CMI proceeded to drop to about $124.
But after it bottomed at $124, it ran up to a high of $156 in about a month.
Then it dropped again to a low of $124 and recently hit a high of almost $151. Again, this took about one month.
So, on CMI you had two swings of about 25% in two months.
Not bad when you consider that this stock was found on the buyback list that took less than 2 minutes to read.
I could show many more examples of stocks that have made decent runs after they announced a buyback, but it is not necessary.
The proof is in the pudding.
Perhaps on the next webinar, I will share how to fine tune the entry. I do believe that the technical indicators I use are pretty good at timing your entry.
But, one of the compelling reasons to consider a stock is if they announced a buyback.
Tomorrow, I will share another technique I like and have mentioned on prior webinars along with actual results of a trade I just closed out.
The support from last week's weekly bar is still in the 2,670 to 2,576 area.
CMG reported last night and is trading $54 higher in the pre open.
Here are the Key Levels for the Markets:
$VIX:
Minor level: 22.66
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
The VIX closed at 15.38. This was the second close now under 15.63 since October.
To move lower, the VIX will have to break under 14.06.
The VIX is oversold, so a bounce here would not be unusual. The VIX has now dropped 6 levels.
A two-level pop would be the expected bounce. That bounce could bring the VIX to 21.88. A move above 21.88 would indicate that the market should drop lower.
SPX:
Major level: 2,812.50
Minor level: 2,792.98
Minor level: 2,753.93
Major level: 2,734.40 <
Minor level: 2,714.88
Minor level: 2,675.83
Major level: 2,656.30
Minor level: 2,636.75
Minor level: 2,597.65
Major level: 2,578.10
At the very least, I would want to see the S & P 500 to close above 2,734.40 to move higher ... and preferable two consecutive closes above it.
We did get one close above it, but yesterday it closed back under that level.
The next minor level on the upside is 2,753.93.
I do believe that 2,695 should offer support on a pullback.
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
The QQQ closed at 170.52 yesterday. With the second close above 170.31, this implies a move up to 175.
Like the S & P, the QQQ is flirting with the midband on the daily chart which is 169.19.
168.75 should be support. 171.88 is minor resistance on the upside.
IWM:
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
Minor level: 142.19
Minor level: 139.06
Major level: 137.50
Minor level: 135.94
Minor level: 132.81
The IWM closed at 150.93. At this point, the IWM will need two closes above 151.56 to move up to 156.
The midband is 155.92 and yesterday's close was about 5 points below it.
But, like the other major markets, short term charts remain bullish.
150 should now be strong support.
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: 118.14
Major level: 118.75
Minor level: 117.97
Minor level: 116.41
Major level: 115.63
The TLT closed at 121.03. Biased for a move up to 121.88.
120.90 should be minor support. Minor resistance is at 121.09. The TLT will need to clear 121.09 to move higher.
GLD:
Major level: 125.00
Minor level: 124.22 **
Minor level: 122.66
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
The GLD closed at 123.44. A close today under 124.22 would imply a drop to 121.88.
Daily chart remains bearish, so I have been looking for a pullback.
122.66 should still be support on the downside.
XLE:
Major level: 71.88
Minor level: 71.10
Minor level: 69.53
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
The XLE closed at 64.66. The XLE struggled to clear the 65.63 level and could not close above it.
A close today under 64.85 and the XLE should drop to 62.50.
63.28 should now offer minor support. 67.19 should offer minor resistance.
Short term charts are bullish.
FXY:
Major level: 89.84
Minor level: 89.65
Minor level: 89.26
Major level: 89.06
Minor level: 88.87
Minor level: 88.48 **
Major level: 88.28
Major level: 87.50 <
Major level: 86.72
Major level: 85.94
Minor level: 85.75
Minor level: 85.36
Major level: 85.16
Minor level: 84.97
The FXY closed at 86.81. Literally sitting right on the midband which is now 86.80. Same as yesterday. A big move is coming.
You know the implications if the FXY breaks under the midband.
86.33 should be support. And resistance should now be at 87.30.
AAPL:
Major level: 187.50
Minor level: 184.38
Minor level: 178.13
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: 159.38
Minor level: 153.13
Major level: 150.00
Apple closed yesterday at 174.24. Apple did hit the $175 level again.
With short term charts in uptrends, look to go long on a pullback. Daily chart remains bearish, so I do expect a pullback.
171.88 should be minor support. And 181.25 should be resistance.
WATCH LIST:
Bullish Stocks: REGN, ULTA, WCG, OST, VRTX, WDAY, ZBRA, AMT, CRM, DECK, ADP, MOH, LLY, DTE, CCI, UAL
Bearish Stocks: ATHM, KMX, QCOM, WTW, URBN, SIG, GES
Be sure to check earnings release dates.