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Yesterday saw massive selling. In fact, at one point, I was wondering if we would see a flash crash.
Perhaps a close of 94.66 points to the downside or a drop of 3.29% qualifies as a mini flash crash.
The DOW was down 3.15% for the day, or slightly less than the S & P 500.
The NASD market bore the brunt of the most selling pressure. The NASD Composite was down 4.08%, while the QQQ sold off 4.4%.
The question now is how far should this market drop?
First off, with a close of only 1% of the daily bar, there is virtually a 100% chance that yesterday's low will be violated before the high.
With the S & P 500 trading about 7 points lower before the open, this condition should be satisfied right off the open.
The second fact about yesterday is that the daily price is most certainly a long range candle. The range for the day was 89.16 points. And the daily average true range is 26.94.
Yesterday's range was 331% greater than the average. I consider a range greater than 200% of the average as a long range bar, but quite frankly, it has been a long time since I have seen a bar of this magnitude.
In hindsight, not shorting at the top, which we called through our resistance levels, was a mistake. As you know, our resistance level was 2,939.50 and the top was 2,940.91.
The main problem is that you can never predict the extent of a reversal. With a pretty decent degree of certainty, we can predict a turning point.
What cannot be predicted is the size of the next swing. In other words, the reversal maybe 10 points or it could be 156 points which was the range from the top to yesterday's low.
The reason I did not recommend shorting is because all main chart formations are bullish. And they still are, which suggests you want to be a buyer when the selling subsides.
The question is when will that happen?
Even though the selling was rather widespread yesterday, the selling did qualify as a selling climax.
Yesterday's down to up volume was 10.79.
Quite frankly, it has been a long time since we have seen a climax of that magnitude.
One selling climax can turn the market, but multiple climaxes is a better indication of a turn.
At this point, we are approaching the major 2,744.10 support level. If this level cannot hold, I do feel that 2,695 would.
And because the market did take out 2,890, I do feel we should get a retest of that level at some point.
Resistance from yesterday's daily bar is in the 2,830 area.
Here are the Key Levels for the Markets:
$VIX:
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
Minor level: 7.81
Major level: 6.25
The VIX closed at 22.96. It had a massive spike of 43.6%.
But it is approaching the upper band on the daily chart which is 25.16. This level is right at the major level and should be resistance.
If the VIX is turned down at this level, the market should bottom.
The S & P 500 has moved four levels, but a move to 25 is only a two-level move in the VIX.
SPX:
Major level: 2,988.30
Minor level: 2,976.10
Minor level: 2.951.70
Major level: 2,939.50
Minor level: 2,927.28
Minor level: 2,902.83
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
Watch to see if support comes in at the 2,744.10 level. If it can't, the next level is 2,695.
Finally, the midband on the daily is 2,732. This should offer support.
If we get another climax, a reversal should be coming.
QQQ:
Major level: 193.75
Minor level: 192.19
Minor level: 189.06
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 <
The QQQ closed at 171.73. The QQQ took out the 175 level.
The next level is 168.75. If the QQQ does close under 168.75 for two days, a drop to 156 is possible.
IWM:
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
The IWM closed at 156.56. Look for a drop to 150. And 150 should offer strong support.
Probably the most oversold market.
The lower band on the 60 minute is 160.26 and on the 30 minute is 157.81.
TLT:
Major level: 115.63
Minor level: 115.24
Minor level: 114.45
Major level: 114.06
Minor level: 113.67
Minor level: 112.89
Major level: 112.50
The TLT closed at 113.49, down .39 for the day.
Watch to see if the TLT can clear 114.06. If it can, it should head higher.
Short term charts remain sharply bearish. Technical resistance is at 116.
GLD:
Major level: 117.19
Minor level: 116.80
Minor level: 116.02
Major level: 115.63
Minor level: 114.85
Minor level: 113.28 **
Major level: 112.50 <
Minor level: 111.72
Minor level: 110.16
Major level: 109.38 <<
The GLD closed at 112.88. Watch to see if the GLD can hold 112.50. If the GLD breaks under 112.50, it could drop to as low as 100.
Starting to look like 112.50 is holding.
Watch the 112.50 level today.
Minor resistance should be at 114.06.
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 75.35. 75 should be strong support.
A break under 75 and I would expect a test of 71.88.
This is a key level.
Both short term charts are in uptrends. Technical support is at 74 and 75.40.
FXY:
Minor level: 84.97
Minor level: 84.58 **
Major level: 84.38
Minor level: 84.18
Minor level: 83.79
Major level: 83.59
Minor level: 83.40
Minor level: 83.01
Major level: 82.81
The FXY closed at 85.05. The FXY continues to bounce from its oversold condition, as we expected.
A close today above 84.58 and the FXY should test 85.16.
Short term charts remain bearish. Technical resistance is right at 85.30. The FXY will need to clear this level to move higher.
AAPL:
Major level: 231.25
Minor level: 229.69
Minor level: 226.56
Major level: 225.00
Minor level: 223.44
Minor level: 220.31
Major level: 218.75
Minor level: 217.19 <
Minor level: 214.06
Major level: 212.50
Apple closed at 216.36. A close today under 217.19 and Apple should test 212.50.
Short term charts remain bullish. Apple is quickly approaching the lower bands on its short term charts.
WATCH LIST:
Bullish Stocks: AMZN, REGN, ALGN, NFLX, BA, FLT, MA, ADBE, EW, ADP, V, ALXN, FANG, PTC, DIS, SQ, ESRX, XLNX, WBA
Bearish Stocks: FDX, GS, MLM, LRCX, WYNN, SMH, KLAC, ALL, ALNY, JACK, PRGO, MNST, KHC, WRK
Be sure to check earnings release dates.