MARKET MOOD: Red
The summary below is my interpretation of the data in the ‘Market Mood Log’ above:
Last week the market shifted from red to yellow and back to red again within the span of 4 days. That’s about as quick as I’ve seen it and speaks to the level of choppiness in the market right now. How’d that happen? More on that below. However, generally speaking, this is the type of environment swing traders like myself prefer to tread lightly in or stay out of completely. Compounding returns is just as much about holding onto gains as it is about making them. Part of holding onto gains is knowing when its best to trade and not digging ourselves into a hole. Here’s a detailed explanation of exactly what I’m seeing:
- Indices rallied and are now caught between support and resistance: This happened across the board on weekly and daily timeframes of each index. Take a look at the linked annotated charts below to see the marked up levels. When this happens, it gives the opportunity for new setups (both bullish and bearish) to develop as the tug of war ensues.
- New Highs BRIEFLY outpaced new lows: This is a large part of what switched the mood from red to yellow and back to red again. There has never been a sustainable uptrend (sustainable being more than a 2-3 weeks) without this new highs vs new lows ratio favoring new highs. Back and forth action, ultimately favoring new lows is reason enough to play it safe.
- Distribution picked up a little: The S&P 500 saw back to back distribution days Thursday and Friday. Interesting, both closed high in their trading ranges and could be interpreted as subtle accumulation days. Which is it? Time will tell. However, the lack of clarity gives raises the likelihood of continued near term chop.
- There are 25 stocks total on the trade ideas list. A slight pick up from the 20 stocks on the trade ideas list last week but 25 is still relatively low. Additionally, the quality isn’t there yet. There are only ‘C’ level setups to kick off the week. See additional notes in the focus list above.
- Open Trades: I’m still holding BROS and its performing very well so far, up nearly +10% from my entry. It’s my lone position.
HOW I’M PLAYING THIS HAND: For now I’m still long BROS, have locked in profits, and am free rolling the rest of the trade. With only a handful of decent looking setups in energy, banks, and reits and ALL of them scoring low on the gauntlet, I’ll be sitting and waiting.
Checkout the charts of the indexes below.
MONTHLY CHARTS (indexes) Over all Direction = Sideways: https://www.tradingview.com/x/7sJUPZjY/
WEEKLY CHARTS (indexes) Over all Direction = Sideways: https://www.tradingview.com/x/NV2HT611/
DAILY CHARTS (indexes) Over all Direction = Sideways: https://www.tradingview.com/x/k1pYQdYt/
(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)