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.
CURRENT POSITIONS:
GOGO Long at $19.93
Total Premium Collected $1.95
ASNA Long at $14.20
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DUST Long $4.50
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RRC Long at $11.85
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RRC Long at $9.20
RIG Long at $8.81
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FEYE Long at $17.18
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ET Long at $11.78
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DBX Long at $19.70
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DBX Short March 27th - $21 Call @ $.25
ET Long at $7.50
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AGNC Long at $13.19
Premium Collected $.40
AGNC Short March 13th - $13.50 Call @ $0.40
MFA Long at $4.20
MFA Short April $5 Call @ $0.40
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Yesterday appeared to be another day that started out looking like we would find a short term bottom in the market, only to fail once again.
The S & P 500 opened with a 14.21 point gap to the downside. The market continued to drift lower and found a bottom at 2,191.86. From there it rallied to a new high at 2,300.73, before once again closing lower.
The day closed out at 2,237.40, down 67.52 points on the day.
Yesterday's price action was actually the most bullish it has been in a while.
I say this because the day closed at 42% of the range. Not quite above the 50% level, but close.
Also, the range for the day was 108.87, which was 47% of the daily average true range.
Yesterday was the first day since this pandemic sell-off began that did not exceed the daily average true range. The last day that was less than the average true range was on February 19th, which just happened to be the top.
But I have been writing about how oversold this market has become.
We know that by simply looking at the daily price chart to see the S & P trading under the extreme lower band. Remember, that the setting I suggest should contain 99.9% of all price action.
So, a violation by definition means there is an extreme oversold condition.
In fact, yesterday was the 8th day that traded under the lower band on the daily chart.
The question is what should we expect to see a bounce in the market.
One of the conditions I mentioned was that I wanted to see the daily average true range turn down.
And yesterday was the first day when that happened. The daily average true range peaked at 149.06 on Friday. And yesterday, it dropped to 147.48.
Another factor I wanted to see was the S & P trade above the lower band on its 60 minute chart.
And yesterday's price action actually held above its lower band on that timeframe.
Another fact is that we have now had two consecutive days in which the S & P and the VIX both close to the downside.
This divergence usually precedes a turn in the market.
And pre open this morning, the S & P is trading lock limit to the upside.
Hopefully, we can hold the gains today. And I suspect we will and will see a multi day bounce.
If the S & P can trade above 2,467, it would confirm a short term bottom in the market.
After this price level, the next key level is the lower band on the daily chart, which is 2,519.21.
This should now be resistance, until it is violated.
If yesterday's low proved to be a short term pivot for the market, the question is how high could it go?
I have price objectives around the 2,775 to 2,935 area.
The higher area would put the market back to around the midband on the daily chart. This is also roughly the midband on the 60 minute chart.
I will share how I obtain these projections in a future webinar.
But, do not be deluded to think that if we pivot today that this market will simply rocket back to new highs.
Sharp upmoves are common in bear markets. In fact, they are designed to suck you in long before the market makes another run lower.
I would be shocked if the S & P did not make another leg lower after a bounce.
Unless of course, some company comes out with a cure for this virus relatively quickly.
With the daily ranges we have been seeing and with the VIX trading at all time highs, this has caused option premium to skyrocket.
For example, I was looking at one of the most oversold stocks in the market as of right now. And that stock is BA.
I felt BA would get a bounce, but when I priced out the at the money call, they were asking $20 for it. This is about 20% of the cost of the stock.
Instead of buying an outright call, you would be better off buying the stock and selling the call against it.
You get a return of about 20% if BA stays above 100 in two weeks. And you are protected down to around $80 per share.
Just some food for thought.
Here are the Key Levels for the Markets:
$VIX:
Major level: 40.62
Minor level: 39.84 **
Minor level: 38.28
Major level: 37.50
Minor level: 36.72
Minor level: 35.16
Major level: 34.38
Minor level: 33.60
Minor level: 32.03
The VIX closed at 61.59. The VIX closed 4.45 points lower on the day. It was down 6.74%.
The VIX and the S & P diverged again yesterday. Both closed lower on the day. This usually tells us that the market is shifting. Especially after two consecutive days.
Look for resistance around 62.50. Technical resistance is around 67.
S & P 500:
Minor level: 3,007.85
Major level: 2,968.80
Minor level: 2,929.75
Minor level: 2,851.65
Major level: 2,812.50
Minor level: 2,773.45
Minor level: 2,695.35
Major level: 2,656.30
Minor level: 2,617.25
Minor level: 2,539.06
Major level: 2,500.00
Minor level: 2,460.95
Minor level: 2,382.85 **
Major level: 2,304.75 <<
Minor level: 2,226.65
The S & P closed at 2,237.40. The S & P held above the minor 2,226.65 level.
Two closes under the minor 2,226.65 level and the S & P would move lower.
But, we should open above 2,304 this morning. This would suggest that 2,304 would be support ... and 2,226 would as well.
Technical support should be around 2,244.
The lower band on the 60 minute chart is 2,098.47.
QQQ:
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
Minor level: 167.19
Minor level: 164.06
Major level: 162.50
The QQQ closed at 170.46. This would suggest if the QQQ can close above 170.31 today, it should move up to 175.
The lower band on the 60 minute chart is 156.83. Watch this level today on a pullback. It should now be support.
176 is a minor technical resistance level. If the QQQ can clear this level, it should head higher.
IWM:
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
Minor level: 151.56 **
Major level: 150.00 <
Minor level: 148.44 **
Minor level: 145.31
Major level: 143.75
The IWM closed at 99.90. The IWM closed 1.50 points lower for the day.
Still trading well below the lower band on the daily chart, which is now 125.05.
The 104 area is resistance. If the IWM can clear this level, look for it to head higher.
TLT:
Major level: 156.25
Minor level: 155.48
Minor level: 153.91
Major level: 153.13
Minor level: 152.35
Minor level: 150.78
Major level: 150.00
Minor level: 149.22
Minor level: 147.66
Major level: 146.88
Minor level: 146.10
The TLT closed at 166.00. The TLT closed 6.57 points higher on the day, The TLT broke back above the upper band on the daily chart.
The upper band is 161.42. This should now be support.
Resistance should be at 174.
GLD:
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
Minor level: 150.78
Major level: 150.00
Minor level: 149.22
Minor level: 147.67
Major level: 146.89
Minor level: 146.11 **
The GLD closed at 146.30. The GLD reversed to the upside, closing 6.19 points higher.
If the GLD can clear 146.89, it should continue up.
The 150 area is still resistance.
XLE:
Major level: 56.25
Minor level: 55.47
Minor level: 53.90
Major level: 53.12
Minor level: 52.34
Minor level: 50.78
Major level: 50.00
Minor level: 49.22
Minor level: 47.65
Major level: 46.88
Minor level: 46.09 **
Minor level: 44.53
Major level: 43.75
The XLE closed at 23.57. The XLE actually closed 1.72 lower on the day.
Completely oversold at this point.
The lower band on the daily chart is 38.00.
The 26 area should be technical resistance.
AAPL:
Major level: 325.00
Minor level: 321.88
Minor level: 315.63
Major level: 312.50
Minor level: 309.38
Minor level: 303.13
Major level: 300.00
Minor level: 296.88 **
Minor level: 290.63
Major level: 287.50 <
Minor level: 284.38
Minor level: 278.13
Major level: 275.00
Minor level: 271.88
Apple closed at 224.37. Apple closed $4.87 lower yesterday.
And Apple closed under the midband on its daily chart. The midband is 235.88. Watch this area today. If Apple cannot reclaim this level, it could drop much lower.
Apple is trading just above the lower band on its 60 minute chart. That level is 216 Watch this level today for support.
WATCH LIST:
Bullish Stocks: ERY, CLX, TDOC, DOG, KR, UUP
Bearish Stocks: CMG, ORLY, INTU, AVGO, FLT, IDXX, LII, MCD, ALGN, MMM, NSC, CMI, ADP, HON, IBM, BA, DIS, ADI, UHS, AZPN, AAP