SPY gaped up today, hit yesterday’s suggested 247 resistance on the first five-minute bar, and turned down, down not so much but maybe enough given that that is a lower high since last week’s nuclear Tuesday reversal.
In addition my daily price and breadth indicators also gave sell signals with lower highs. Volatility remains on a buy but it is for the third day in a row which makes any more time tenuous. If it were to turn it would give a higher low in the VIX, a possible hint a change in trend.
Today’s turn down in short-term breadth (see red circle on the chart below) in context with the continued decline in long-term breadth is often a gift the the bears, which is to say the general market should plunge tomorrow.
These are all quiet signals after yesterday blast to the upside which may mean they mean nothing at all and today’s long sideways price action after the open was nothing but a consolidation of yesterday’s gain before proceeding higher.
But these quiet, disquieting, signals could also be like whispers in the night — “beware the ides of August, beware…”
How often has the market topped quietly in August and fallen all the say into October?
SWING TRADING SIGNALS:
PRICE: Sell. Price (Day 1).
SHORT-TERM BREADTH: Sell. (Day 1).
VOLATILITY: Buy, (Day 3).
LONG-TERM BREADTH: Sell (Day 10).
CNN MONEY’S FEAR AND GREED INDEX: (36, still at a fear level).
NIFTY-50 STOCK LIST: 42 Buys; 13 Overbought, 2 Oversold, 2 new buys today, 3 new sells.
(click on the chart for a larger view)
Simply put, after a long choppy but steady down trend, coffee has changed course to an up trend, breaking it’s down sloping moving average, then retesting it perfectly before resuming its new trend to the upside.
Nothing more to say. The chart says it all.
(click on chart for a larger view)
At the risk of oversimplification, the most effective ways to trade stocks is to keep it simple.
One of the best ever at this was Nicholas Darvas.
His method was to put a simple box around a stock’s price consolidation and buy it as the stock came out of the top of the box and either put a stop loss below his trade price (which would be a tight stop if the stock came back into the box) or below the bottom of the box (depending on anyone’s individual risk parameters).
Darvas said he never shorted a stock dropping below the bottom of a box only because he felt he was not psychologically suited to selling short. Still that would be, especially in a bear market, as simple of buying the top of one of his boxes in a bull market.
Darvas’ book “How I Made $2,000,000 In The Stock Market” (this was the 1950s) describes his “Box System”. It is a classic. And timeless – see the chart of RACE below.
I have said before the easiest way to buy or not buy an IPO is to put a box on the high and low of its first day of trading and buy above the top of the box and short below the box. While an IPO’s first day is itself a Darvas box (blue on the chart below) as one can see here there are others also very worthwhile for the trader as well as a longer-term investor.
(Click on chart for a larger view)
With BABA at new all time highs, I marked up the chart below mostly for fun, (although over the years it has been useful), and to suggest one could make a living trading just one stock.
(click on chart for a larger view)
TREND TRADE: Down from open, 1/20.
SWING TRADE: Neutral from open, 1/23.
DAY/SCALP TRADE: Selling the bounces with the trend trade
PRICE TREND: Nasdaq down 1 day, whipsawing.
Market breadth as measured by the McClellan Oscillator (NYMO) and Summation Index (NYSI) has turned negative with a falling NYSI and highs below highs on the NYMO (see first chart below).
One of the great things about the McClellan is that the two indicators give hints ahead of time as to what is likely to come next in the general market. If there is another high below a high on the NYMO, especially below the zero line, it will likely be a gift to the bears.
The McClellan is not infallible but it almost is.
In addition (see second chart below) this post-election rally has been mirroring the post-Brexit rally almost perfectly. If that continues, it is also saying a sell-off is right around the corner.
To state the obvious, the sell-off itself indicated above has not, as yet, happened.
But maybe tomorrow. An age-old “turn around Tuesday”? If not it likely to be soon.
(click on the charts for a larger view)
Not confirmed yet but if the market stays down it appears after 45 days of rally, the market may begin to take a tumble today. And if today’s downside trigger follows through, there could be a full-blown correction in the making.
A couple of ifs in there but if they hold, it will be time to look around for stocks to sell if one currently holds them, or to short if one is an aggressive trader.
Case in point – TSLA.
TSLA, like to most stocks, tends to run with the market’s general direction, both up and down.
On the up, Tesla has had a great in run during this rally, roughly from 191 to (at the moment) 227, or 18.5% or so. A profit well worth locking in since the stock can be volatile.
Now for the down. Looking at the chart below, it appears the market may be turning negative (the green and red dots the middle of the chart) and so is Tesla’s stock. When the market and the stock are in sync like this one needs to go with the market until the stock says otherwise.
In short, TSLA is a short. That is if all the ifs above remain true at the end of this day.
Market breadth did not stay negative on yesterday’s close (note the green dot instead of red on the indicator in the middle of the second chart below) so the short signal anticipated here never triggered and instead TSLA, on news (its charging station pricing) and modestly bullish day in the Nasdaq to back it up, had a nice rise today, 3.3% from today’s open. So it goes sometimes.
(right click on the chart for a larger view)
(right click on UPDATED chart for a larger view)
One of the great things about market breadth is that over and over again it warns when a rally is weakening. It usually takes more than one warning before a pause becomes a fall but…
Actually, it usually it takes three and we are at two early warnings now.
See the red circles on the chart below, both past and present. And note how often they are the precursors for sell-offs to come. Sometimes this trading and investing is simpler than most analysts and Wall-Street players would have to common man believe. But one must take heed.
Not saying this rally is over. In fact, it is just the kind of rally (like the Brexit rally last summer) that can go on confounding bears and confounding indicators as it rides waves of too easy money, a seasonal bullishness, and like all bull markets the tendency to go up until it stops going up..
But the warnings are here now and beginning to repeat so this is becoming a time to take some profits or to tighten stop-loss points to make sure not too much is lost when a serious tumble finally takes hold.
(click on the chart for larger view)
TREND TRADE: Long from open, 11/9.
SWING TRADE: Sell from open, 12/12.
DAY/SCALP TRADE: Long bias, but possible short for day/scalp.
PRICE TRENDS: TQQQ, up 6 days, TNA up 5 days, UPRO up 6 days.
With SWING TRADE turning down Friday and prices on the index ETFs extended to 5 to 6 days up in a row the time has come to exit all longs on Monday’s open (ideally, but otherwise on any strength Monday).
With the TREND TRADE still up, this is primarily a pause before the next run-up until further notice.
However, there is some possibility to trade the short side either for a scalp, or a day-trade or for an aggressive swing trade. Stop losses for each strategy and intraday time tolerances are the key to the nature of each. In other words, as always, it’s a matter of cutting losses quickly, and letting profits run, and never letting a profit turn into a loss (i.e. using a breakeven stop once there is a trade to breakeven).
THE DAY/SCALP TRADE:
(right click on chart for a larger view)
THE TREND/SWING TRADE:
(click on the chart for a larger view)