MARKET MOOD: RED
I consider the market mood to still be in a ‘red’ condition this week. Below is the criteria for a ‘red’ condition. When any of these conditions appear, the best condition I’ll assign is red.
Initial buys are less than 50/50
Trade ideas are less then 50/50
Mostly ‘B’ and ‘C’ setups
New Highs fewer vs New Lows expanding
Indexes are choppy and have some red flags
I attempted 4 trades last week. 2 short, 1 long, and 1 sideways (sold out of the money puts on the SPY). The only trade that worked well was the SPY puts. The long and shorts got chopped up. This sends me a clear signal from the market that it’s still choppy waters and I should continue to size small if I trade at all.
The setups heading into next week are bit better than last. We finally have an ‘A’ setup (FOXF which I was shaken out of, more on that in a moment). But the majority of the setups require aggressive entries. Aggressive entries have few confluences across time frames. While they have momentum, strong RS and could work, I often question if THIS is the environment for it. In a ‘red’ condition, I’d rather play it safe until I start to gain some traction.
The new highs vs new lows list on both the NYSE and NASDAQ improved slightly in that new lows are back in the low single / double digits. That said, they’re not showing the kind of strength they did for much of this uptrend. The character has changed and its worth keeping in mind.
Finally, the indexes themselves remain choppy and sideways. They each produced ‘inside weeks’ which means that the price action from this week was within the range of the price action last week. Things were slightly less volatile… but sideways nevertheless.
The red condition has me playing light again this week. 2 trades on the action list under this red condition has me risking a total of 0.63% of capital. We’ll see how they play out. FOXF is back on the list but as an ‘A’ list trade. It tightened up and the setup improved despite my decision to exit last week. Whenever I get shaken out, I do like to keep my old notes but I like to start fresh on the chart so I can see things without bias. The idea is more appealing now than before.
I also like ESI. It’s a ‘B’ level trade for me. See the action list above for details.
Giving thought to market conditions, trade grade, potential duration, and sizing sets expectations for the trade. We’re prepared and when we’re prepared, we can be confident.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up https://www.tradingview.com/x/Syr6RkzB/?aff_id=15325&offer_id=10
WEEKLY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/IJbLsHNZ/?aff_id=15325&offer_id=10
DAILY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/VWUT52lE/?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)
Deep Dive Video