MARKET MOOD: Red
Since November 17, the market has been in a ‘RED’ condition in all but 16 days.
The summary below is my interpretation of the data in the ‘Market Mood Log’ above:
- Sharp rallies from deeply oversold levels: Each major indexes as well as many industry ETFs and stocks rallied sharply on Thursday and Friday. When stocks become extend to the downside like this, sharp rallies become more likely. Looking across timeframes is often helpful to understand where these rallies are likely to occur. Almost to the penny, the Russell 2000 dropped to and bounced from its prior 2018 highs.
- New Lows accelerated: Most of the week saw the NASDAQ in the 500 – 600 new lows range. When the indexes touched long term support on Thursday, the NASDAQ put in 676 new lows and the NYSE put in 447 new lows, nearing the numbers seen back in January. When we see spikes like this, short term rallies tend to be around the corner. In this year alone the phenomena occurred on 1/24, 2/24, and 3/14. We’ll see if it occurs again here but the scales are tipping in the bounce direction.
- Distribution remains elevated at 4 over last 10 trading days: As distribution is falling off the count more is being added. However, not all distribution days are created equally. The distribution day that occurred on Thursday sent prices steeply lower on heavy volume but at the end of the day, price closed high in its range. It still counted as a distribution day but weakness was being bought.
- There are only 20 stocks total on the trade ideas list. If the market does bounce from here, the lack of quality setups and the lack of breadth (few setups) is what is leading me to believe that any bounce is likely to be short lived. The market is made up of individual stocks. Its the stocks that form quality setups and breakout that send the indexes higher. Seeing breadth and quality work sends the market higher. I’m seeing neither of those presently.
- Open Trades: I’m still long MRK. It had danced around the entry point for about a week and by the end of the week gained some steam and closed near its highs on above average volume. I’m continuing to play this one out.
HOW I’M PLAYING THIS HAND: With the lack of quality setups in either direction, I’m continuing to sit and wait. Should quality setups appear mid-week, I’ll post them in the action list and in our Discord server.
Checkout the charts of the indexes below.
MONTHLY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/6HKkG4Xo/
WEEKLY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/YymUPSLx/
DAILY CHARTS (indexes) Over all Direction = Down: https://www.tradingview.com/x/UNTLJMc0/
(on the lower right is FFTY, the ETF that tracks the IBD 50)
MARKET MOOD REVIEW
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Trade Ideas, setups for the week ahead and group discussion (Mike)