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I brought up on Friday the question as to whether we could declare this correction over. And I said ... "I doubt it."
And Friday reversed and closed 46.88 points lower, at 2,658.69. The range for the day was 64.22.
I do think the market is close to reversing. And there are a few reasons for that.
The first is that Friday's daily bar formed a doji. And this can mean indecision.
The second reason is that both sentiment indicators I track have dropped below the lower band on the daily chart. They are oversold and should bounce.
And the final reason I believe the bottom is close is because the VIX has not made a particularly large move in this pullback. I would have expected the VIX to close above 25, but it has not been able to close above for more than one day.
The VIX is also at the upper band on the daily chart which tells us that it is probably not going to go much higher.
The resistance level from Friday's daily bar is in the 2,660 to 2,663 area.
Weekly price bar was also bearish. For the week, the S & P 500 closed 109.09 points lower. And the range for the week was 150.78 points. Compared with the weekly average true range of 68.27, the range was over 200% of the average.
This qualifies the weekly bar as a long-range candle which is particularly bearish.
Resistance from last week's weekly bar is in the 2,703 to 2,716 area.
The real question we need to address is how far can this pullback go? And I suspect the next question we need to address is whether the bull market is over?
As far as how far down this pullback can go, the key will be the 2,646.50 level.
This is because if the market closes under 2,646.50 for two days, I would fully expect a drop to 2,548 and possibly to 2,500.
As for the bull market question, there are a few factors to consider.
The first is that it is now highly likely that the S & P 500 will close under the upper band on the monthly chart.
Friday closed at 2,658.69. And the upper band on the monthly chart is 2,718.85. So, as of Friday, the S & P 500 closed 60 points under the upper band. There are three trading days left in the month, and moving 60 points in a day would not be out of question based on the ranges we have seen lately.
But, the point is that a close under the upper band would be bearish.
The second factor to consider at the moment is that all major timeframes for the S & P 500 are still bullish. That is the monthly, weekly and daily charts.
The daily chart is close to crossing into a downtrend. The 200 ema is 2,757.12 and the 253-day average is 2,740.47.
For a bear market to begin, I would expect the daily chart to cross into a downtrend.
By the way, the last time the daily chart for the S & P 500 crossed into a downtrend was in August of 2015. Right after that, the S & P 500 broke under the lower band on the daily chart. It retested the lower band in February of 2016.
The February 2016 low, which turned out to be a major bottom, came in at 1,810.10.
So, from that low to the recent high the market ran 1,131 points. This was a move of 62% in three years.
If the S & P 500 does confirm to the downside and drops to 2,500, it would be right around the lower band on the daily chart which is 2,491.
And a drop to 2,500 would be a pullback of 440 points.
Based on the upleg of 1,810 points, this would only be a pullback of 25%.
A 50% pullback would project a bottom at around 2,000. Quite frankly, I don't see the market dropping that low because the bottom band on the daily chart is 2,500.
I will continue to monitor the longer term levels.
Earnings continue this week. Tuesday we will hear from Facebook and BIDU. And Thursday, we will hear from Apple.
Continue to monitor the levels as I mentioned.
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
The VIX closed at 24.41. Friday was the second day the VIX closed back under the major 25 level.
The VIX got as high as 27.52 and then the VIX fell to close under 25. I mentioned Friday that 28.13 should be resistance and it was. At this point, 28.13 should be resistance.
23.44 should offer support. A break under this level and it should continue lower.
A turn to bear market would be indicated if the VIX ran to 31.25.
SPX:
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 <
Minor level: 2,683.10
Minor level: 2,658.70 <
Major level: 2,646.50 **
2,646.50 is the major level to watch. This level should tell us if the S & P 500 should continue lower. Two closes under it and I would expect a drop to 2,550 to possibly 2,500.
Two closes above 2,658.70 and the market should move up to 2,695.30. Friday's close was two cents under the 2,658.70 level. I would expect resistance at 2,695.30.
Minor resistance should be at 2,675.60. And minor support at 2,651.40.
QQQ:
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 <
Minor level: 167.19
Minor level: 164.06
Major level: 162.50 <
The QQQ closed at 166.66. The QQQ is just under the midband on the daily chart. That level is 168.07. And the QQQ will need to clear this level to head higher.
165.63 is a minor support level.
Friday, the QQQ did close under the major 168.75 level. It will need to close above it today for this market to head back up.
"A retest of 166.49 is the likely scenario for today." And Friday's low was 164.23.
IWM:
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 147.48. 150 should be resistance now for the IWM.
146.88 is a minor support level. Watch to see if this can hold today.
The 149 - 150 area should be strong resistance.
The lower band on the 60 minute is 143.18. Look for support at this level.
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 114.99. A close today above 114.45 and the TLT should test 115.63.
The TLT would have to move up to 117.19 for the downtrend to be over.
117.19 is minor resistance. And 114.06 is minor support.
GLD:
Major level: 118.75
Minor level: 117.97
Minor level: 116.41
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 116.77. Biased for a test of 118.75.
Technical resistance is at 121. And technical support at 114.
Minor support is at 116.41.
XLE:
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
Minor level: 67.97
Minor level: 66.41
Major level: 65.63
The XLE closed at 66.48. Friday's low was 65.38, or 25 cents under the 65.63 level.
The 68.75 level should offer resistance. And minor support is at 66.41.
66.20 is the lower band on the 60 minute chart. Watch to see if this level can hold.
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 85.50. Two closes above 85.36 and the FXY should test 85.94. And two closes under 84.97 and it should drop to 84.38.
85.16 should offer minor support. And 85.55 is resistance.
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 216.30. Apple will need to reclaim 217.19 to head higher.
214.06 is minor support. And 218.75 should offer resistance.
Best to avoid until a valid market reversal is in place.
WATCH LIST:
Bullish Stocks: AMT, PG, LW, WPC, O, PEG, SAVE, TWTR, KDP
Bearish Stocks: LMT, ANET, GS, FDX, BIDU, MMM, GD, BABA, DE, CMI, CAT, FANG, URI, RCL, ALL, SWKS, JACK, CELG, GILD
Be sure to check earnings release dates.