MARKET MOOD: Red
The summary below is my interpretation of the data in the ‘Market Mood Log’ above:
It’s often when the world looks like its going to fall apart that the market bottoms and begins to rally… This has happened time and time again with the most recent bottoming happening in March 2020 and POTENTIALLY this past Thursday.
As I reviewed the data this week, I noticed that Thursday’s price action corresponded well with major capitulation lows that often result in a short term rally. Daily volume was the most in over a year and corresponded well with support levels from April/May 2021. Additionally, there was a spike in the number of new lows that also often correlates with a short term relief rally… The thing about rallies is that they all start out as short term and if they ‘get legs’ then they continue to move to the upside.
What makes potential short term rallies intriguing are when other factors favoring a rally begin to appear as well. Much like the first signs of Spring the snow melts, the days get warmer, and buds appear on the trees. Well, in addition to the above, New Highs actually outpaced new lows on the NYSE and there are several solid ‘B’ level setups on this week’s focus list that all make sense given Russia / Ukraine, namely Energy Stocks.
- Monthly Timeframes Begin Downtrends while Daily Shift to Sideways: The market sure does like to keep things interesting! Should a rally begin here there are plenty of headwinds price will need to get through across time frames. That said, The price/volume action on Thursday and Friday were impressive across the board!
- New Lows started drying up: After Thursday’s sharp spike down, New Lows tapered off on Friday on the NASDAQ and NYSE. New Highs actually outpaced new lows on the NYSE. This is one of the elements required for the market to turn.
- Distribution lightened: There were no additional distribution days last week. It could be a sign of fear lessening OR it could be selling pressure lightening briefly so that major players can sell at higher prices. Time will tell.
- There are 27 stocks total on the trade ideas list. A few less than last week BUT fairly high quality given the market conditions. Last week saw 86% of the trade ideas list finish positive.
- Open Trades: I’m in cash at the time of this writing.
HOW I’M PLAYING THIS HAND: I’m starting the week with working orders on ERF, SFL, and SBNY. Each for a 1/4 position risking 0.25% of capital. They are the leaders in the Energy and Bank sectors which are leading and rebounding respectively.
Checkout the charts of the indexes below.
MONTHLY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/0R5RLNth/
WEEKLY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/dx1cWc20/
DAILY CHARTS (indexes) Over all Direction = Sideways (negative): https://www.tradingview.com/x/OdmzquyO/
(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)