September 4, 2020 - MDT Pro Tips

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.

I suggested an uneven hedge yesterday on CRUS. The idea was to buy double the amount of puts than calls. And the trade did not suggest buying a lot of time, so the idea is the move should be fast. Or at least that is what we are looking for.

The profit-taking we have been looking for, certainly set in yesterday. The S & P 500 sold off a massive 125.78 points.

Certainly, the old adage that the market takes the steps up and the elevator down rang true.

The question for us is simple. Was this predictable? More on that later.

With the massive 125 point drop, the S & P closed at 3,455.06. This, of course, was after moving to within 5.49 points of the 3,593.60 objective.

And the day closed out at 20% of the range of the daily price bar. And the daily bar certainly qualified as a bearish long-range candle.

The daily range was over 300% of the daily average true range, which is 43.09 points.

This means that yesterday's price bar should be resistance.

Specifically, the midpoint, which is 3,497.13 should be a resistance level.

Above that level, there is resistance at 3,510.

Yesterday also closed under the weekly price bar support level, which is in the 3,461 to 3,463 area. Yesterday's close of 3,455 is just under this area and should now be resistance.

If the S & P cannot recoup this level, I would expect a run to test last week's low, which was 3,413.13.

I alluded to how we could have predicted this sell-off.

One of the things I have been pointing out is that the S & P and the VIX have been diverging.

In fact, last week we had two consecutive days where both the S & P and the VIX closed higher.

Then this week, we had two days that did the same. The only distinction was that they did not happen on consecutive days.

As I have said, these days are warnings that a change in direction is forthcoming.

Now the question is how far can this pullback go?

Before I suggest where a bottom could form, I want to point out that the S & P just completed a 4 level move using our resistance levels.

This is measured from the low on June 15th to the high on September 2nd.

And because the move measured 4 levels, I believe the bull market will not change.

Based on this, I would expect a 2 level move lower, which would put the bottom around 3,275.

Of course, I will continue to monitor this as the market trades into the future.

DOCU reported and is trading about $8.50 lower.

Here are the Key Levels for the Markets:

$VIX:

Minor level: 32.03
Major level: 31.25
Minor level: 30.47
Minor level: 28.91
Major level: 28.13
Minor level: 27.35
Minor level: 25.78
Major level: 25.00
Minor level: 24.22
Minor level: 22.66
Major level: 21.88
Minor level: 21.10

The VIX closed at 33.60. The VIX closed 7.03 points higher for the day. The VIX had a spike of 26.46%.

This put the VIX well above the midband on the daily chart, which is 25.44. That level should now be support.

"These are warnings to me that a reversal is coming." From yesterday.

Short term, the VIX is overbought and is trading above the upper band on the 60 minute chart. That level is 29.55.

This tells us it is overbought and that it should test the upper band once it sells off to close under it.

S & P 500:

Major level: 3,593.60 <
Minor level: 3,554.55
Minor level: 3,476.45 **
Major level: 3,437.40
Minor level: 3,398.35
Minor level: 3,320.25
Major level: 3,281.20
Minor level: 3,242.15
Minor level: 3,164.00
Major level: 3,125.00
Minor level: 3,085.95
Minor level: 3,007.85
Major level: 2,968.80

The S & P closed at 3,455.06. At this point, the 3,476 level should be resistance.

With a close under 3,554 today, the S & P should test 3,427.

Technical support is also around 3,504.

QQQ:

Major level: 306.25
Minor level: 304.69
Minor level: 301.56
Major level: 300.00 <
Minor level: 298.44
Minor level: 295.31
Major level: 293.75
Minor level: 292.19
Minor level: 289.06
Major level: 287.50 <
Minor level: 285.94
Minor level: 282.81
Major level: 281.25
Minor level: 279.69

The QQQ closed at 287.41. This was a drop of $15.35. And a drop of 5.07%.

And it put the QQQ under the upper band on the daily chart, which is 296.24. This level should now be resistance.

The QQQ has already dropped 2 levels. Watch the 285.94 level on the downside. Two closed under this level and the QQQ should drop to 281.25.

Short term oversold, with technical resistance at 294.

IWM:

Major level: 162.50
Minor level: 160.94
Minor level: 157.81 **
Major level: 156.25 HIT
Minor level: 154.70 **
Minor level: 151.56
Major level: 150.00
Minor level: 148.44
Minor level: 145.31
Major level: 143.75
Minor level: 142.19
Minor level: 139.06
Major level: 137.50
Minor level: 135.94

The IWM closed at 153.78, closing 4.68 lower. A close today under 154.70 and the IWM should drop to 150.

The 156.25 level should be resistance. Short term oversold with resistance around 156.

TLT:

Major level: 171.88
Minor level: 171.10
Minor level: 169.53
Major level: 168.75
Minor level: 167.97
Minor level: 166.41
Major level: 165.63 < HIT
Minor level: 164.85
Minor level: 163.28
Major level: 162.50
Minor level: 161.72
Minor level: 160.16
Major level: 159.38

The TLT closed at 165.89, closing .47 higher. The TLT closed just above the 165.63 level.

The next higher level is 166.41. The TLT will need to close above this level to move higher. But, I would expect resistance at this level.

Technical resistance is now around 167. Short term trends remain bearish. But, short term the TLT is oversold and bounce should be expected. And is bouncing as expected.

GLD:

Major level: 190.63
Minor level: 189.85
Minor level: 188.28
Major level: 187.50
Minor level: 186.72
Minor level: 185.16
Major level: 184.38
Minor level: 183.60
Minor level: 182.03
Major level: 181.25 < HIT
Minor level: 180.47
Minor level: 178.91
Major level: 175.00

The GLD closed at 181.14 The GLD closed 1.48 lower on the day. The GLD hit the 181.25 level already.

Short term momentum has turned bearish. The technical resistance level is 182.

Two closes under 180.47 and the GLD should drop to 175.

XLE:

Minor level: 44.53
Major level: 43.75
Minor level: 42.97
Minor level: 41.41
Major level: 40.63
Minor level: 39.83
Minor level: 38.28
Major level: 37.50
Minor level: 36.72 **
Minor level: 35.15
Major level: 34.37 HIT
Minor level: 33.59
Minor level: 32.03
Major level: 31.25

The XLE closed at 34.98. The objective should be down to 34.37.

Watch to see if the XLE can hold the 34.37 level.

Watch the minor 35.15 level today. If the XLE can hold it, it should head higher.

Technical resistance is still at 37. I do expect a short term bounce. But, the XLE will need to hold 35.15.

AAPL:

Major level: 150.00
Minor level: 146.88
Minor level: 140.63
Major level: 137.50 <
Minor level: 134.38 **
Minor level: 128.13
Major level: 125.00
Minor level: 121.88 **
Minor level: 115.63
Major level: 112.50
Minor level: 109.13

Apple closed at 120.88. Apple closed 10.52 lower. A close today under 121.88 and Apple should drop to 112.50.

Also, Apple closed under the upper band on the daily chart. That price level is 122.85 and should now be resistance.

Technical resistance around 121.

WATCH LIST:

Bullish Stocks: AMZN, TSLA, GOOGL, NVDA, AAPL, NTES, LULU, MA, COST, INTU, AVGO, RH, ZM, FB, BABA, HD, CRM, WDAY, V, MSFT, DE, KLAC, PYP:

Bearish Stocks: BDX, MLM, ATO, ES, DUK, AEP, EHTH, CMS, WUBA, HES, KEX