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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The S & P 500 continues to pullback after a making a new high. For the day, the market was down 10.55 points. It closed at 2,878.05.
And the range for the day was 24.76 points. When compared to the daily average true range, which is now 19.31 points, you can see that the selling is expanding.
And for the day, the close was 43% of the daily bar. This tells us that there is about a 60% chance that yesterday's low will be violated before the high.
And to make matters worse, the VIX closed at 14.63. This was the first day the VIX closed above 14.06. This does tell us that a close today above 14.06 and the VIX should continue higher.
Now that I have laid out all the bearish factors at the moment, you may ask "What's the good news?".
For starters, the market did make a new all time high. And bear markets seldom begin after making a new high. Another rally would certainly be expected. Major topping patterns take a while to develop.
The second scenario is that both the short term 30 minute and 60 minute chart are still bullish. Actually yesterday's low bounced off the midband on the 30 minute chart.
But I am remiss to say that once again our VIX and S & P 500 divergence "predicted" this round of profit taking.
I say I am remiss because I did not suggest puts ... or even an uneven straddle or strangle.
You may be asking what I am talking about.
As you know, I follow the VIX pretty closely. And the normal close relationship is that they close in the inverse direction.
When they both close in the same direction, it is a divergence.
And once again, this pullback was preceded by two consecutive divergent days.
This happened on Monday the 27th and Tuesday the 28th.
The next day, the market closed at an all time high, at 2,914.04.
Since that close, the S & P 500 has dropped 36 points, on a close to close relationship.
And the selling may not be over.
Today's close should help to confirm that more selling maybe in order. The high for the week is 2,900.18 and the low, so far, is 2,867.29.
The midpoint is 2,883.50.
And yesterday closed just under it. A close today under 2,883.50 would be bearish.
The market is also getting close to the August monthly support levels. That level is between 2,856 to 2,861.
You would want to watch to see if this area holds as support.
Resistance from yesterday's daily price bar is in the 2,879 to 2,883 area.
You also want to watch the close, which was 2,888.60. This should be a key price level for today.
Pre open, the S & P 500 is trading about 6 points to the downside. Watch the levels I mentioned above.
We do get the Non Farm Payroll this morning at 8:30 EST.
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 managed to close higher for the day, at 14.63. This was the first close above 14.06. A close today above 14.06 and the VIX should test 18.75.
15.63 should be minor resistance and 16.41 could offer strong resistance.
Minor support is at 13.67 and 14.06.
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
The S & P 500 closed just under the minor 2,878.40 level, at 2,878.05. A close today under 2,878.40 and I would expect a drop to 2,841.30.
Minor support is at 2,854 and 2,866.20.
Short term intra day 30 and 60 minute charts are still bullish. Technical support is around 2,868 and yesterday's low bounced off it. A break under this level would be bearish.
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 Hit
Minor level: 179.69 **
Minor level: 176.56
Major level: 175.00
The QQQ closed at 181.81. The QQQ did hit the 181.25 level.
To move lower, it will need two closes under 179.69.
A break under 181.25 and the QQQ should head lower. Minor support level is 179.69. Two closes under that level and the QQQ should drop to 175.
Like the S & P 500, short term charts remain bullish, but the QQQ is sitting right on the midband on the 60 minute chart. This level is 181.04. A break under this level would be bearish.
IWM:
Major level: 175.00
Minor level:174.22
Minor level: 172.66
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
The IWM closed at 170.63. This was the first close under 171.10. A close today under 171.10 and the IWM should test 168.75.
Minor support should be at 169.53. A break under this and the IWM should drop to 168.75.
TLT:
Major level: 123.44
Minor level: 123.05
Minor level: 122.27
Major level: 121.88
Minor level: 121.10 <
Minor level: 119.53 **
Major level: 118.75
Minor level: 118.36
Minor level: 117.58
Major level: 117.19
The TLT closed at 120.50. A close above 119.53 and the TLT should test 121.88.
The TLT did break under the midband on the daily chart, which is now 120.40. To move higher, the TLT needs to clear this level as well.
At this point, minor resistance is at 120.31.
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 113.54. A close above 113.28 today and the GLD should test 115.63.
113.28 is minor support now. And 112.50 should also offer support.
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 72.81. The XLE has now had two closes under 74.22, so a test of 71.88 is probable.
71.88 is a key level. Two closes under that level and the XLE could drop to 62.
Minor support should now be at 71.88 and 71.09. And minor resistance is at 73.44.
FXY:
Major level: 86.72 <
Minor level: 86.53
Minor level: 86.14 **
Major level: 85.94
Minor level: 85.75
Minor level: 85.36
Major level: 85.16
Minor level: 84.97
The FXY closed at 86.24. The FXY held just above the minor 85.55 level. A close today above 86.14 and the FXY should test 86.72.
86.04 should offer support. And resistance is at 86.52.
Technical resistance is at 86.22, and the FXY is right on the level. Watch to see if it holds.
AAPL:
Major level: 237.50
Minor level: 234.38
Minor level: 228.13
Major level: 225.00
Minor level: 221.88 **
Minor level: 215.63
Major level: 212.50
Minor level: 209.38
Apple closed at 223.10. Two closes under 221.88 and Apple should test 212.50.
225 should now be resistance.
Short term charts still remain firmly bullish. Buy oversold conditions. Be patient and wait for the turn.
WATCH LIST:
Bullish Stocks: AMZN, ALGN, ILMN, DPZ, ADBE, BDX, DIA, COST, PANW, AAPL, MA, AET, AMGN, CME, WDAY, ADSK, CRM, GRUB
Bearish Stocks: TSLA, LRCX, EXP, SWKS, SPR, LRCX, CPA, RGLD, KHC, AN, HAL, NTRI, JD, OSTK, TECK,
Be sure to check earnings release dates.