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 got the strong bounce from this oversold condition. For the day, the S & P 500 closed 59.13 points higher at 2,809.92.
We were on alert that this could happen for a few reasons.
The first is that I said that with the market stalling at 2,940.91 last month, I did not feel this market would roll over without a retest of the high.
And I suspect that is what we shall see.
The second reason was that we had a selling climax on the 10th.
As I mentioned, one selling climax can turn the markets. Two would be better. But, it looks like one climax did the trick.
The final reason is that on Monday we had the divergence between the S & P 500 and the VIX. Both closed to the downside. When both of these indexes close in the same direction, it usually signals a change in direction is to occur.
I mentioned yesterday how the exact top in the market has both the S & P 500 and the VIX closing to the downside.
Friday had both closing to the downside, and it was an inside day. The actual low came on Thursday, one day before the divergence.
Still good enough to say that just knowing this information can help improve your results.
And by the way, this does not require the need for any complicated technical indicators.
I mentioned yesterday how I would discuss the sentiment indicators I like to follow.
The first is the bullish percent index, which on stockcharts.com is plotted as $BPSPX.
The second one is the percents of stocks above their 200 day moving average. That symbol on stockcharts.com is $SPXA200R.
Generally, when these indicators read over 80, they are overbought and readings under 20 are oversold.
On September 27th, the day before the top, the bullish percent index read 69. Yesterday, it hit a low of 45.
The % of stocks above their 200 day average topped at 73.20 and dropped to a low of 40.80 on October 11th.
What I find is that these indicators are not suited to time the turns, but they can put you on alert that a turn is coming. They can stay overbought for a while before a top is in.
But, I do find that when they start to move, the move is usually fast and sharp. Just as we have seen recently.
The support level from yesterday's daily bar is in the 2,788 to 2,790 area.
2,822 could offer resistance from last week's weekly bar, as well as 2,803.
Pre open, the S & P 500 is trading about 12 points lower.
Continue to monitor the levels as I mentioned.
NFLX reported last night and is up about $33 pre open.
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 17.64. In one day, the VIX dropped to under 18.75.
Minor support is at 15.63. Also, technical support is at 14.
This is close to the major 25 level, which should also offer resistance.
"Biased for a move back to 18.75." We got this yesterday in one day. 18.75 should now be resistance.
SPX:
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
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
Minor level: 2,731.90
Minor level: 2,707.50
Major level: 2,695.30
2,783.20 should offer minor support. If the S & P 500 can close above 2,805.20, I would expect a retest of 2,841.80.
Short term charts do remain bearish, so another drop should happen before heading higher.
2,765 should provide technical support.
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
Minor level: 173.44
Minor level: 170.31
Major level: 168.75
The QQQ closed at 177.22. 175 should now offer support.
And a close today above 176.56 and the QQQ should test 181.25.
181 is technical resistance.
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 158.64. The IWM closed above the midband on the daily chart, which is 157.78. Look for support there.
Bouncing as expected.
Watch to see if the IWM can close above 154.69. Support should be at 151.56.
The lower band on the 60 minute is 154.30. And 153 should offer technical support.
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 114.68. A close today above 114.45 and the TLT should test 115.63.
The TLT bounced from its oversold condition. The question is how high should this bounce go?
I think if the TLT can move up to the 117.19 level, a major bottom may be forming.
The 114.06 level should offer support. And 113.28 as well.
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 115.80. Like the TLT, the GLD bounced off its oversold condition.
I would not expect this bounce to move higher than 118.75.
Two closes above 116.02 and the GLD should test 118.75. Look for resistance at 116.80.
Support is at 114.
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 72.99. A close today above 72.66 and the XLE should test 75.
If the XLE can hold 72.66, should retest 75.
The 60 minute chart remains bullish. 71.88 is a key level for the XLE and should offer support.
FXY:
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
Minor level: 84.18
Minor level: 83.79
Major level: 83.59
The FXY closed at 85.17, just one cent above the major 85.16 level.
The next level on the upside is 85.36.
Watch to see if the FXY can hold 85.16. If the FXY drops under 85.16, I would expect support at 84.77.
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 222.15. A close today above 220.31 and Apple should test 225.
To move lower, Apple needs two closes under 217.19. But, 218.75 should offer support.
WATCH LIST:
Bullish Stocks: ESL, PEG, CHL, PYX, XOXO, NYT, VALE
Bearish Stocks: TSLA, FDX, BIDU, MMM, MLM, BABA, IBM, ITW, CB, SAGE, RCL, OLED, KLAC, ITW, KLAC
Be sure to check earnings release dates.
