It’s important to keep everything in perspective. Each of the time frames. Each of the major indexes. The New Highs vs New Lows. As well as the stocks setting up. It’s very easy to get caught up in the minutae and when that happens, we can lose perspective.
We closed out January and while last week momentum shot to the downside, when we look at the monthly timeframe, each of the major indexes remain in uptrends and all are at or close to major structual support. If you’re someone that wants to play the short side, keep in mind the monthly charts and major support levels. They could bite you in the behind. See linked charts below.
When we begin to drill down into the weekly and daily timeframes, this is where things look a little dicey in the intermediate and shorter term. The S&P 500, NYSE, and Dow all closed below their 10wk lines. However, each are also at major support levels and have several layers of potential support nearby. In fact, pullbacks of 3%-6% all have potential support.
The kind of market’s I like to short are where things get blown wide open and there’s major “air pockets” meaning there’s no structual support insight. From what we have here now on the indexes, the potential for choppy action is high.
Given the sharp pullback, the number of stocks making new highs dried up significantly. That’s to be expected. The number of new lows so far has remained in the very low single digits. It’s worth keeping an eye out to see if this changes. Typically the “new high vs new low” indicator leads major moves. For example, in January 2020 we saw a major increase in the number of stocks hitting new lows BEFORE the market collapsed in late February.
There are also very few constructive chart patterns in the Universe List right now. Only 11 trade ideas caught my eye this week out of 236 stocks on the Universe List. Of those 11, 2 made it to the Focus List (FRHC and TTWO).
Given the above, I’m planning to continue playing extremely light next week. I’m still sitting with DKNG. It’s held up so far but is still pretty close to breakeven. I’m only planning to open a 1/4 position in FRHC should it breakout. I’m simply testing the waters. As trades works, I quickly step up my size. Trade larger when things are working. Scale down when things are choppy.
January was a very profitable month generating +5R Total.
Checkout the charts of the indexes below for a closer look at the action.
DAILY CHARTS (indexes): https://www.tradingview.com/x/btjZcp2A/?aff_id=15325&offer_id=10
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
WEEKLY CHARTS (indexes): https://www.tradingview.com/x/r3EIVK05/?aff_id=15325&offer_id=10
MONTHLY CHARTS (indexes): https://www.tradingview.com/x/PNcPOasp/?aff_id=15325&offer_id=10
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