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 the move to the upside continued and followed through. For the day, the S & P 500 closed 25.67 points to the upside.
The S & P closed at 2,846.07.
Suffice it to say that our upside objective was hit again. This is becoming all too familiar, which does make me concerned.
But, the fact of the matter is that I have been calling for an expansion and certainly yesterday qualified as one. The range for the day was 30.30 points. And the average true range is 21.35 points.
So yesterday's range was almost 150% of the average.
And for the day, the S & P 500 closed at 94% of the daily price bar. This puts the odds of yesterday's high being violated before the low at over 90%.
Support from yesterday's daily price bar should be in the 2,831 to 2,833 area.
Yesterday's low came in at 2,817.73, which was about 3 points lower the support level I mentioned yesterday. That level was 2,820.
I am going to divert here a moment and ask a simple question. What is more important when trading the markets? Having a correct directional bias or knowing how to predict when an expansion should occur?
Think about this for a moment. And tomorrow I will share my thoughts.
Facebook reported last evening and is off about $44 pre open. That is a drop of about 20%, wiping out billions in equity.
The question for you is this. Would you have been long going into earnings?
The answer for me is a resounding no.
The reason why is very simple.
If you look at Facebook on its daily chart and use the chart settings I use, which includes the extreme bollinger bands, you see very clearly that Facebook was trading well above its upper band.
In fact, yesterday FB closed at 217.50 and its upper band was 209.66. So, it was about $8 above the upper band.
Based on this, would you want to short? Possibly, but I would certainly not want to be long. Could FB continue higher above its upper band? Yes, if could but the odds tell us that this is a rare event and going long may not be a smart thing to do.
The best strategy at extremes like this is a straddle or a strangle. This way you are positioned for a move in either direction.
Pre open, the S & P 500 is trading about 5 points lower. Follow the support levels below and the support I mentioned above from yesterday's daily bar.
Continue to monitor the longer term levels for the market.
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 <
Minor level: 10.94
The VIX closed at 12.29. Yesterday's high was 12.82, about 50 cents under the minor 13.28 level.
This puts the VIX back under the major long term support level.
I mentioned the minor 12.30 level and the VIX managed to close one cent under it. This tells us that if the VIX can close under 12.30 today, it should drop to 11.72.
On the upside minor resistance is still at 12.70.
SPX:
Major level: 2,890.60
Minor level: 2,878.40
Minor level: 2,854.00 **
Major level: 2,841.80 <
Minor level: 2,829.60
Minor level: 2,805.20
Major level: 2,793.00
Minor level: 2,780.78
Minor level: 2,756.33
Major level: 2,744.10
Now that 2,841.80 is taken out, it should offer support on a pullback. To move higher, the S & P 500 will need two closes above 2,854.
On the upside, resistance is at 2,854.00. Under 2,841.80, the next support level is 2,835.70.
QQQ:
Major level: 187.50
Minor level: 185.94
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
The QQQ closed at 182.82. This was one cent above the next minor level of 182.81. A close today above 182.81 implies a move up to 187.50.
181.25 should be support. And 182.03 should offer minor support.
IWM:
Major level: 171.88
Minor level: 171.10
Minor level: 169.53 **
Major level: 168.75 <<
Minor level: 167.97 **
Minor level: 166.41
Major level: 165.63
Minor level: 164.85
Minor level: 163.28
Major level: 162.50
The IWM closed at 167.50. The IWM dropped to a low of 166.14, just 55 cents above the 165.63 level.
166.41 should offer support. And if the IWM can clear 167.97, I would expect it to head higher.
Both short term charts are still in uptrends, so I would expect another rally after the IWM finds support. Yesterday's low came right in at the midband on the 30 minute chart.
TLT:
Major level: 125.00
Minor level: 124.61
Minor level: 123.83
Major level: 123.44
Minor level: 121.49
Minor level: 120.70
Major level: 120.31
Minor level: 119.92 **
Minor level: 119.14
Major level: 118.75
The TLT closed at 119.49. A drop to 118.75 should be the next minor move.
Yesterday's high came in at 120.26, just 5 cents under the 120.31 resistance level. To move higher, the TLT will need to close above 120.31.
If the TLT can drop under 119.14, it should head down to 118.75.
GLD:
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 **
Major level: 115.63
The GLD closed at 116.68. A close today above 116.02 and the GLD should test 117.19.
A break under the 115.63 level and the GLD should continue lower.
On the upside, 117.97 should still be resistance.
XLE:
Major level: 78.13 <
Minor level: 77.35
Minor level: 75.78 **
Major level: 75.00
Minor level: 74.22
Minor level: 72.66
Major level: 71.88
Minor level: 71.10
Minor level: 69.53
Major level: 68.75
The XLE closed at 76.13, just above the 75.78 level. A close today above 75.78 implies a retest of 78.13.
Support should be at 75.29. And minor resistance is at 77.34.
FXY:
Major level: 86.72
Minor level: 86.53
Minor level: 86.14
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
The FXY closed at 86.23. The FXY should test 86.82.
Watch the 86.13 minor support. And 85.94 should offer support.
If it can clear 86.33 it should head higher.
AAPL:
Major level: 200.00
Minor level: 198.44
Minor level: 195.31
Major level: 193.75 <
Minor level: 192.19 **
Minor level: 189.06
Major level: 187.50
Minor level: 186.72
Minor level: 185.16
Major level: 184.38
Apple closed at 194.92. The 193.75 objective was taken out.
193.75 should now offer support. 195.31 could offer some resistance. So, if Apple takes out 195.31, look for it to head higher.
The 60 minute chart crossed over into an uptrend yesterday. This implies that Apple should continue higher.
WATCH LIST:
Bullish Stocks: GWW, HUM, COST, FB, SNA, IBM, V, EW, CRI, DIS, GRUB, DATA, DXCM, SQ, DNKN
Bearish Stocks: TSLA, NXPI, SMG, BG, CAH, CTRP, EBAY, TSRO
Be sure to check earnings release dates.