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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Yesterday saw the first strong move to the downside in quite some time. For the day, the S & P 500 closed 19.34 points to the downside. The market closed at 2,853.53.
I mentioned yesterday that because of the high close percentage on the weekly price bar last week, the expectation is that the high should be violated before the low.
Yesterday's price action was contained within the body of last week's weekly price bar. The midpoint of last week's price bar is 2,840. And yesterday's close is about 14 points above the midpoint, which should offer support.
So, you want to see if the midpoint level holds as support.
So, what would invalidate this assumption? Simply if price traded below the low of last week's weekly price bar. The low was 2,808.
I have had a few emails from members asking if the bull market is over.
Let me say this. As you know, one of the technical tools I like to use is the bollinger bands set to a 253 day setting, with a 2.576 standard deviation.
This setting replicates about one year of trading. And the 2.576 offset, should contain 99.9% of all price action.
By definition, this tells us that when price gets above the upper band (or lower band) that it is a highly unusual event.
And as I have been pointing out, price is trading above the upper band for the S & P 500 on the monthly, weekly and daily charts. This clearly tells us how overbought the market is.
But, it does not necessarily mean that we will move into a bear market. It does tell us that risk is greatly enhanced when you go long above the upper band.
And for a meaningful pullback to happen, we would expect a close back inside the upper band. At least on the daily chart. So, you want to keep an eye on 2,823, which is the upper band on the daily chart.
I bring up the upper band because it is a very simple way to determine if a market or stock is overbought or oversold.
Let's take a look at Wynn Resorts Ltd.(WYNN). WYNN was trading above its upper band on both the dialy and 60 minute charts, before its chairman was implicated for some improprieties.
The fact that it was above the upper band immediately tells me I really do not want to buy the stock.
The question is would you go short?
When the price went sideways for three days, you could have considered a short. Then the news came out and the stock has dropped $44 in three days.
Not all stocks react this violently after being above the upper band, but the point is you should consider your options when price is at that extreme.
Pre open, the S & P 500 is trading about 14 points to the downside, indicating a lower open. This would put the open around 2,840, which is right around the support level I mentioned above.
If the market can hold this level, or reclaim it after selling off under it, a bounce would be expected.
Short term intra day charts remain bullish for the S & P 500.
Here are the Key Levels for the Markets:
$VIX:
Major level: 14.06
Minor level: 13.67
Minor level: 12.89
Major level: 12.50 <
Minor level: 12.11 **
Minor level: 11.33
Major level: 10.94
Minor level: 10.55
Minor level: 10.16
Major level: 9.38
Minor level: 8.99
Minor level: 8.20
Major level: 7.81
The VIX closed at 13.68. It was up 23% for the day and closed above the 12.50 level. We were looking for a retest of 12.50, and for it to offer resistance.
Now the key level is 12.89. A close above 12.89 and the VIX should test 14.06.
Watch the 14.06 level. I would expect at 14.06, but if the VIX clears this level, it should head higher.
$SPX:
Major level: 2,890.60 <
Minor level: 2,871.08
Minor level: 2,832.03 **
Major level: 2,812.50
Minor level: 2,792.98
Minor level: 2,753.93
Major level: 2,734.40
Minor level: 2,724.23
Minor level: 2,705.07
Major level: 2,695.30
Minor level: 2,685.55
Friday, the S & P 500 closed at 2,853.53, below the 2,871.08 minor level. This now suggests that if the market closes under 2,871.08, it would test 2,812.50.
2,822.30 is a minor support level. And 2,846 should also offer support.
2,836.90 is also a minor support level.
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 170.10. The QQQ will now need two closes above 170.31 to move higher.
169.53 should be minor support.
Like the S & P 500, short term charts are bullish.
IWM:
Major level: 162.50
Minor level: 161.72
Minor level: 160.16 **
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
The IWM closed at 158.70. Minor support is at 158.59. If the IWM closes under 158.59, a test of 156.25 is possible.
Minor resistance should be at 159.38. Short term charts are bullish.
TLT:
Major level: 128.13
Minor level: 127.35
Minor level: 125.78
Major level: 125.00
Minor level: 124.61
Minor level: 123.83
Major level: 123.44 <
Minor level: 123.05 **
Minor level: 122.27
Major level: 121.88
The TLT closed at 122.73. A close today under 123.44 and the TLT should test 121.88.
123.44 should offer resistance.
GLD:
Major level: 131.25
Minor level: 130.47
Minor level: 128.91
Major level: 128.13 <
Minor level: 127.35 **
Minor level: 125.78
Major level: 125.00
Minor level: 124.22
Minor level: 122.66
The GLD closed at 127.35. This was right on the minor level.
An open under 128.13 and this level should be resistance.
To move lower, the GLD will need two closes under 127.35.
XLE:
Major level: 81.25
Minor level: 80.47
Minor level: 78.91
Major level: 78.13 <
Minor level: 77.74 **
Minor level: 76.95
Major level: 76.56
Minor level: 76.17
Minor level: 75.39
Major level: 75.00
Minor level: 74.61
The XLE closed at 77.51. The upper band is 76.57. A close under the upper band and I would expect a pullback.
The XLE is overbought, but the 75 level should offer support.
FXY:
Major level: 89.06
Minor level: 88.87
Minor level: 88.48
Major level: 88.28 <
Minor level: 88.09
Minor level: 87.70
Major level: 87.50
Minor level: 87.31
Minor level: 86.92
Major level: 86.72
Minor level: 86.53
The FXY closed at 88.26, just under the major 88.28 level.
And the FXY should test 88.28, which it did. Two closes above 88.48 and the FXY should test 89.
87.50 should be a major support level. 87.89 is minor support.
AAPL:
Major level: 178.13
Minor level: 177.35
Minor level: 175.78
Major level: 175.00
Minor level: 174.22
Minor level: 172.66
Major level: 171.88
Minor level: 171.10
Minor level: 169.53
Major level: 168.75
Apple closed at 171.51. 170.31 should be minor support.
Short term charts still bullish, so a bounce at the minor 170.31 would not be unexpected.
WATCH LIST:
Bullish Stocks: AMZN, GOOGL, LMT, BA, SPY, GWW, ALGN, ORLY, NLFX, BDX, LLL, FLT, RTN, DE, VRTX, PANW, CME
Bearish Stocks: SLG, ALK, CHD, SAVE, HA, TLK,
Be sure to check earnings release dates.
