MARKET MOOD: Red
The summary below is my interpretation of the data in the ‘Market Mood Log’ above:
There were a few major points that jumped out at me when assessing this week’s ‘market mood’ including an extreme dry up in the universe list (359 last week to 300 this week), topping action and hard sell offs in a number of stocks across sectors, and whipsawing action on the major indexes. The market is in the ‘chop zone’ right now. While the indexes have been whipping back and forth, until major support is broken, this chop is likely to continue. Good for short term and day trading, harder on swing and intermediate styles.
- Whipsaw on the indexes: Each of the indexes across weekly and daily time frames experienced whipsawing action this week and were caught between levels of intermediate term support / resistance. The price action has gotten wide and loose as these levels have been tested.
- More New Lows are being made than new highs: the market cannot produce a sustainable, constructive rally, until this is rectified. It’s been 2 months since the NASDAQ has had sustained triple digit new highs and low double digit new lows.
- Distribution not a huge factor: You wouldn’t know it from the whipsawing action but there are only 2 distribution days in the last 2 weeks on the S&P 500. The sell off came on lower daily volume. This could be one of those things that ends up producing more of a reason for buyers to step in.
- There are only 19 stocks total on the trade ideas list. That’s pretty light. When there isn’t much merchandise to choose from, its a sign that it’s not a great time to go shopping.
- Open Trades: None as of this weekend.
HOW I’M PLAYING THIS HAND: There’s 1 long and 1 short that look attractive and I’m placing order for. I’m looking to short BUG via 30 Feb 18 puts. I’m looking to go long DOV. Both will be small positions risking 0.25% capital each. With such small positions and in a choppy environment, I’m often asked ‘why bother putting on positions at all? what not sit it out altogether?’ It’s a fair question and my answer is two fold.
- Putting on trades in setups I like helps me keep my finger on the pulse of the market.
- If the trades work out, I’m able to build on success and do not feel flat footed. I can also recycle those gains to finance risk.
Checkout the charts of the indexes below.
MONTHLY CHARTS (indexes) Over all Direction = Sideways: https://www.tradingview.com/x/zRIpp14z/
WEEKLY CHARTS (indexes) Over all Direction = sideways: https://www.tradingview.com/x/8s67XpDB/
DAILY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/waAruCCt/
(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)