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.
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It seems like only yesterday that I was writing about market contractions. In fact, I wrote this ... "I point these contractions out because they will ultimately lead to an expansion. This happens all the time. Expansions lead to contractions and contractions lead to expansions."
Quite frankly, it seems more predictable than oversold or overbought areas.
Here's I what I mean.
I have always believed that markets run from overbought to oversold and from oversold to overbought.
If you look at our extreme bollinger bands, you realize how true this is.
But, the problem for us as traders is that a market can remain overbought a lot longer than you think it can. And the opposite is true as well.
You only have to look at some of the stocks I show on our webinars to see how true this is. Apple, in particular, has run well above its upper band on its monthly chart for quite some time now.
And the TLT has entered a manic period. One of the advantages of the extreme bollinger bands is that you can instantly spot when a stock or market is in a mania.
Just because a stock takes out the upper band does not necessarily mean you short the stock. It puts you on alert that a pullback can happen. But, it does suggest that a retest of the upper band is highly likely after it does drop under the upper band. In fact, the TLT is doing that now.
But I digress.
When you see a contraction or a series of contractions, it is inevitable that an expansion will follow.
And that is what happened yesterday.
The range for the day was 50.25 points. This was 166% of the daily average true range, which is now 30.28.
And for the day, the daily price bar closed at 18% of the range. This does suggest that yesterday's low of 2,957.73 should be violated before the high.
The resistance area from yesterday's daily bar is in the 2,982 to 2,985 area.
And now that price has dropped under the weekly support area, it should now be resistance. That price area is around 2,987 to 2,990.
Also, last week's low of 2,978.57 should now be resistance.
Pre open, the S & P is trading about 2 points lower.
The short term 30 minute and 60 minute charts remain bullish. This does suggest we should get another rally.
Here are the Key Levels for the Markets:
$VIX:
Major level: 25.00
Minor level: 24.22
Minor level: 22.66
Major level: 21.88
Minor level: 21.10
Minor level: 19.53
Major level: 18.75
Minor level: 17.97
Minor level: 16.41
Major level: 15.63 <
Minor level: 14.85 **
Minor level: 13.28
Major level: 12.50 <
The VIX closed at 17.05 yesterday. The VIX jumped 2.14 points.
As I mentioned the other day, the 17.19 is a key level for the VIX. A break above this level should indicate that market will drop further.
A move up to 18.75 would imply the VIX will make another move higher.
On the downside, 14.06 should offer support.
SPX:
Minor level: 3,164.08
Major level: 3,125.00 <
Minor level: 3,085.95
Minor level: 3,007.85 **
Major level: 2,968.80 <
Minor level: 2,929.73
Minor level: 2,851.58
Major level: 2,812.50
Minor level: 2,773.45
Minor level: 2,695.35
Major level: 2,656.30
The S & P closed at 2,966.61. Yesterday's high was 3,007.98, which you no doubt recognize is 13 cents above the minor 3,007.85 level.
The S & P had struggled to close back above this minor level and sold off against it.
At this point, I would expect support at 2,949.20. If this level cannot hold, I would expect 2,900 would.
Short term trends remain bullish. Look for technical support around 2,934.
QQQ:
Major level: 196.88
Minor level: 196.10
Minor level: 194.53
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
The QQQ closed at 187.97. The QQQ is right at the major 187.50 level. A break under this level would imply a drop to 185.94.
And how the QQQ reacts at 185.94 should tell us if it will go lower.
Technical support should be around 187.60.
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 152.43. The IWM will still need two closes above 157.81 to test 162.50.
A test of 150 is likely if the IWM closes under 154.69.
151.56 should offer support.
150.50 should offer technical support.
TLT:
Major level: 150.00
Minor level: 148.44
Minor level: 145.31
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: 135.84
The TLT closed at 143.57. Yesterday's high took out the 143.75 objective we were looking for.
At this point, the TLT will need two closes above 145.31 to move up to 150.
A move up to test the upper band seems to shaping up. The upper band is 149.90, which is right at the next major level.
GLD:
Major level: 150.00 <
Minor level: 148.44
Minor level: 145.31
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
The GLD closed at 144.51. The GLD closed above the 143.75 level.
The next minor level is 145.31. Two closes above this level and the objective is 150.
Like the TLT, the GLD should test the upper band. The upper band is 148.
XLE:
Major level: 65.63
Minor level: 64.85
Minor level: 63.28
Major level: 62.50 <
Minor level: 61.72 **
Minor level: 60.16
Major level: 59.38
Minor level: 58.60
Minor level: 57.03
Major level: 56.25
The XLE closed at 60.33. The XLE will need to reclaim 61.72 to head higher.
With a close today under 61.72, the TLT should drop to 59.38.
In the short term, if the XLE closes under 60.94 today, it should test 56.
The 30 minute chart is still bullish. And the 60 minute chart is bullish as well. And technical support is at 59.
AAPL:
Major level: 225.00 <
Minor level: 221.88
Minor level: 215.63 **
Major level: 212.50 <
Minor level: 209.38
Minor level: 203.13
Major level: 200.00
Minor level: 196.88
Minor level: 190.63
Major level: 187.50
Minor level: 184.38
Apple closed at 217.68. 215.63 should offer support on the downside.
On the downside, support should be at 212.50. I would expect this level to hold. If it can't, a drop to 200 would be the next move.
Technical support is at 210.
WATCH LIST:
Bullish Stocks: ORLY, LMT, NOW, MLM, STZ, FB, BABA, HON, KLAC, EXPE, MSFT, WMT, ATO
Bearish Stocks: NFLX, RARE, CLX, ETE, NTGR
Be sure to check earnings release dates.
