MARKET MOOD: Red
The summary below is my interpretation of the data in the ‘Market Mood Log’ above:
The market is back in the “Snip Snap” chop zone (nod to Andrew for The Office reference)! What does this mean? Well, the reasons are stacking for the market to begin the next leg down. The major indexes have begun shifting back toward the downside, distribution picked up towards the end of the week, and so did the number of stocks making new lows. However, interestingly enough the majority of bullish setups we’ve found the last 3 weeks have been working. Until that shifts, the market bias may be down, but I’d anticipate chop along the way. Yes, shorts can work, but be aware of major support zones (the indexes have support zones about 3-4% away presently).
- Indexes setting up for a potential drop: Across the board on weekly and daily time frames, each of the indexes have made bearish wedging patterns. Given the sharper down days and distribution on Thursday and Friday, a continuation to the downside is anticipated. However, Given the heavy buying the week of January 24 and those lows only being 3-4% away, it’s also plausible that we get some major whipsaw next week as well.
- More new lows are being made: Very briefly on Wednesday, new highs outpaced new lows. The rest of the week, more stocks made new lows and hit triple digit new lows on Friday. This indicator should be closely monitored. If it breaks hard to the downside, the chances of a much steeper drop increases.
- Distribution picked up: The S&P 500 now has 4 distribution days over the past 10 trading days. That is what is known as a ‘distribution cluster’ and it points to unusual selling pressure. In the near term, this typically leads to a further decline.
- There are 18 stocks total on the trade ideas list. It’s slim pickings as far as setups go. Only 12 appear actionable and they’re ‘B’ level trades at best. In a ‘snip snap’ market, that’s not good enough for me.
- Open Trades: Presently I’m sitting with PBT which broke out and began to follow through on Friday. I had sold my remaining position in BROS last week, netting 0.34R total.
HOW I’M PLAYING THIS HAND: Sit out power! Patience! I’ll be waiting and watching for the right setups to form. In a choppy market, we don’t have the wind at our backs and only the best setups are likely to work. Remember, in the market its possible to make gains very quickly and have a great year. Having a great year becomes more challenging if during the good periods, we’re busy digging ourselves out of a hole. Therefore, I’ll be exercising patience.
Checkout the charts of the indexes below.
MONTHLY CHARTS (indexes) Over all Direction = Sideways Negative: https://www.tradingview.com/x/RuZuXZqX/
WEEKLY CHARTS (indexes) Over all Direction = Sideways Negative: https://www.tradingview.com/x/tyeqk1or/
DAILY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/abr9u5DV/
(on the lower right is FFTY, the ETF that tracks the IBD 50)
MARKET MOOD REVIEW
Trade Ideas, setups for the week ahead and group discussion (Mike)