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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The story last week of course, was the tech wreck on Friday. It seems that all the highflyers on the NASD market sold off. And with tremendous moves.
The Composite was down 113.85 or 1.9% on the day. The QQQ had an even bigger drop. For the day, it was down 3.59 points or 2.50%.
When you look at some of the leaders you can see how big some of these moves were.
For example, Amazon closed down $31.96. However, it had an intra day range of $86.
Another leader has been Google. GOOGL closed down $34.16 and had an intra day range of $52.13.
And because this happened on a Friday, weekly options exploded.
To give you an idea, I will share some examples.
The AMZN $1,000 put had a low of 17 cents and hit a high of $36.13.
The GOOGL $1,000 put had a low of $.37 and went to a high of $37.20.
What is remarkable about Friday is that the major markets diverged. The DOW actually ended closing higher by 89.44 points. And the S & P 500 closed down only 2.02 points.
So, the major selling was confined to the NASD.
There are two questions to consider. The first is could we have anticipated this? And the second is how far can this market continue to drop?
To answer the first question, we need to look at the VIX. As we know, the major long term support level for the VIX is 9.38.
Friday, the VIX stopped at 9.37 before rocketing up to a high of 12.11.
The VIX has tested 9.38 before and the markets have not reacted like last Friday. It can help us to pinpoint turns, but the magnitude of the turn is another issue.
As far as how far this market can drop, we can also look at the VIX to help determine that.
At this point, the 9.38 level is a key level for the VIX. This is because if the VIX does close under 9.38 it could then drop down to 3. I know this seems rather extreme, but that is how I read the VIX at the moment.
On the upside, 12.50 is still a resistance level. And a move up to 15.63 would still keep the bull market in tact.
A move above the 15.63 level, would indicate that the VIX could go higher and the markets lower.
Even with the large sell off on Friday in the NASD market, it is still trading above its upper band on its monthly chart. That level is 5,839.15 and Friday the NASD Composite closed at 6,207.92 or about 400 points above it.
Pre open, the NASD should open lower.
One final comment about Friday's sell off is this. Volume reached climax levels for the NASD, which suggests this sell off maybe short lived.
And it certainly had the feel of computer selling on Friday.
Here are the Key Levels for the Markets:
$VIX:
Minor level: 14.45
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: 9.77
Major level: 9.38 <
Watch the minor 10.16 level today. It should offer support.
And 12.50 should continue to act as resistance. Friday's range ran from 9.38 to exactly 12.11.
$SPX:
Major level: 2,500.00
Minor level: 2,484.38
Minor level: 2,453.12
Major level: 2,437.50 <
Minor level: 2,421.88 ***
Minor level: 2,390.62
Major level: 2,375.00
Minor level: 2,359.38
Minor level: 2,328.12
Major level: 2,312.50
2,406.30 should act as support. 2,429.70 is a minor level to watch. If the S & P 500 closes under 2,429.70, expect a test of 2,406.30.
QQQ:
Major level: 146.87
Minor level: 146.09
Minor level: 144.53
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
The QQQ dropped from 143.75 to almost the 137.50 level.
Look for 137.50 to offer support.
140.63 should be minor resistance. A move down to 131.25 would keep the bull market intact.
IWM:
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
As the NASD was selling off, the IWM actually closed up on Friday. It closed up .73, at 141.61.
This implies that if the IWM closes above 141.41 today, it should move up to 143.75.
140.63 to 141.02 should be minor support.
TLT:
Major level: 128.13
Minor level: 127.35
Minor level: 125.78
Major level: 125.00 <
Minor level: 124.22 **
Minor level: 122.66
Major level: 121.88
Minor level: 121.09
Minor level: 119.53
Major level: 118.75
Minor level: 117.96
The TLT closed at 124.40. It needs to break under 123.83 to move lower. And it needs two closes under 124.22 to drop to 121.88.
124.61 should offer resistance and 123.83 should be minor support.
GLD:
Major level: 125.00
Minor level: 124.22
Minor level: 122.66
Major level: 121.88 <
Minor level: 120.32
Minor level: 119.53
Major level: 118.75
Minor level: 117.97
Minor level: 116.41
Major level: 115.63
The GLD closed at 120.54, just under 121.88. It will need two closes under 120.32 to drop to 119.53.
Minor support should be at 119.53.
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
The XLE closed one cent above the 66.41 level. A close today above that level and the XLE should test 68.75.
66.80 is minor resistance. And 65.82 should be support.
FXY:
Minor level: 87.89
Major level: 87.50 <
Minor level: 87.11 **
Minor level: 86.33
Major level: 85.94
Minor level: 85.55
Minor level: 84.77
Major level: 84.38
Minor level: 83.60
Minor level: 83.20
Major level: 82.81
The FXY did close under 87.50 yesterday. 87.70 should be minor resistance.
It will need two closes under 87.11 to drop to 85.94. 86.33 should be minor support.
AAPL:
Major levels for Apple are 162.50, 156.25, 150, 143.75, and 137.50
Apple is selling off with the other tech stocks. I would expect 143.75 to offer support. 151.56 should be resistance.
WATCH LIST:
Bullish Stocks: TSLA, NTES, MLM, MMM, FDX, CI, MPC, DAL, CHD, PENN, CONN, POT, CENX
Bearish Stocks: AZO, AAP, CASY, DLTR, EXR, LSI, SLB, JCI, SFLY
Be sure to check earnings release dates.