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Planning your trades
The long term outlook for stocks is still cautiously bullish. This means long-term investment portfolios can stay in stocks for now. We will elaborate on “why bullish” question in our weekend analysis. For the intermediate term and short term, we need to monitor $VIX and $VXN closely. These 2 indicators are the most sensitive to the true underlying market moods. All other market internal indicators serve to confirm and provide context. But $VIX and $VXN are the leading ones. Between yesterday and today, $VIX and $VXN have formed the kind of pattern that says they are right on the verge of a significant message... The rest of this article covers: Table of support and resistance levels Planning your trades (more) Register your email here for full access to all our nightly analysis and trading plans. No credit card necessary. Trial membership is FREE for one month. Here are testimonials from our readers.
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Market context
The Fed cut its fed funds target rate Wednesday to 1.50% to 1.75% today, the 3rd consecutive rate cut this year. The initial reactions from stock market and bond market were muted. Traders got a little more excited when Powell hinted at keeping rate low for now, as long as inflation doesn’t surge. As a result, $SPX $NDX SPY QQQ TQQQ all spiked up in the last hour. However, Powell did not hint at additional rate cut in December. And “not raising rate” is not the same as “cutting rate”. The Fed is basically leaving the door open for wiggle room. They have flexibility to do what they might need to in December: another cut or do nothing. In looking at the last-hour spike in price, some of us may start to feel the effects of FOMO. Is it too late to jump on this bullish bandwagon at this point? Will the market take off without us? First let’s take a look at how high prices can go in the intermediate term. The rest of this article covers: Table of support and resistance levels Projections based on market internals Planning your trades Register your email here for full access to all our nightly analysis and trading plans. No credit card necessary. Trial membership is FREE for one month. Here are testimonials from our readers. Projections based on market internals
As we’ve been sharing with you in the last few posts, market internals are still showing conflicting messages, but overall they continue to show an intermediate-term bullish bias. Within this intermediate term bullish bias, there are now more instances of bearish divergence.
The rest of this article covers: Projections based on market internals (more) Table of support and resistance levels Planning your trades for FOMC Register your email here for full access to all our nightly analysis and trading plans. No credit card necessary. Trial membership is FREE for one month. Here are testimonials from our readers. Market context
This coming week will be full of events that have the ability to move the market more substantially than what we saw last week. Here is a complete list of important events. Certainly the most important events will be FOMC rate announcement on Wednesday 10/30 at 2 PM EST. It is widely believed that the Fed will cut rate by another 0.25%. However, it is up in the air right now as to what Jerome Powell will say regarding December and future rate cuts. Trick or treat? May be neither. According to Goldman Sachs, the Fed is unlikely to raise rates, but they also are unlikely to continue with another rate cut in December. They may simply just take the bowl of treats away. So from a trading standpoint, what is the best way to navigate this market? Before diving into that, let’s take a look at short-term support and resistance levels. The rest of this article covers: Table of support and resistance levels Projections based on market internals Planning your trades Register your email here for full access to all our nightly analysis and trading plans. No credit card necessary. Trial membership is FREE for one month. Here are testimonials from our readers. Projections based on market internals
NYSE cumulative A/D line daily chart is pretty much an all time high. But there are other indicators standing in the way of total bullishness.
The rest of this article covers: Projections based on market internals (more) Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Market context
$SPX $NDX SPY QQQ TQQQ tested Support1 overnight, and started climbing up this morning. We wrote in our trading plan last night:
As we write this after the trading hours of Wednesday 10/23, $SPX $NDX futures and SPY QQQ TQQQ have reached Resistance1. We posted a notice on Stocktwits that you should take your money and run. We hope you did! Projections based on market internals Even though market internals are still showing an intermediate term bullish bias, not all market internal indicators are equally bullish. Under the hood, Nasdaq market breadth has been lagging NYSE. And on the price action charts, small caps ($RUT IWM TNA) have been going sideway since February this year. The key conclusion here is that the appetite for risk has been greatly reduced. But the other important information to keep in mind is that big money is not ready to give up on this market yet:
As a result we have this Choppy Market that may persist for a while. What this means is that we still have to endure more short-term rapid swings up and down (Bounce and Drop). The rest of this article covers: Projections based on market internals (more) Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Below is an excerpt of the full trading plan posted Tuesday evening at 10/22/19 11:46 PM EST
Projections based on market internals Market internals are still showing an intermediate term bullish bias. The good news from this is that we are unlikely to see the start of a Down Trend any time soon. However, as you can tell from just simply looking at the charts of $SPX $NDX SPY QQQ TQQQ, we are not done with this Choppy Market yet. (Sorry but the term “Non-Trending Market” was too much of a mouthful.) What this means is that we are still have to endure more short-term rapid swings, up and down (Bounce and Drop). In the short term, $VIX $VXN charts, as well as NYSE and Nasdaq A/D charts, show that volatility is likely to rise a bit more. This means $SPX $NDX SPY QQQ TQQQ are likely to drop a bit more. $SPX $NDX SPY QQQ TQQQ are most likely going to drop down to test Support2 tomorrow. After that, price movements will be unpredictable until one of these 2 conditions happens: The rest of this article covers: Projections based on market internals (more) Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Projections based on market internals
Market internal indicators are all sending out a highly bullish message. The current Bounce is capable of turning into the resumption of the Up Trend that started on 12/26/19. However, $SPX $NDX SPY QQQ TQQQ are likely to gap into Resistance1 at open today. There is still a fair amount of skepticism from buyers about the ability of this market to rise above Resistance2. Therefore, there is a high probability that $SPX $NDX SPY QQQ TQQQ will need to drop a bit and test at least Support1 first. This test is necessary to assure existing bulls, and to bring in more buyers. If enough buyers arrive, $SPX $NDX SPY QQQ TQQQ can go all the way to Resistance2, and possibly to rise above it. The rest of this article covers: Table of support and resistance levels Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Updated Sunday 10/20/19 at 6:30 PM EST
In this weekend analysis, we will try to address a number of questions that our readers have been asking. Non-trending Market We have been using the term “Volatile Market” to describe the type of market that stocks have been in since mid-September. This term is causing some confusion, so we are going to re-label it “Non-trending Market”. As this label implies, stocks are not in an Up Trend or a Down Trend right now. $SPX $NDX have been going sideway in choppy trading conditions since mid-September. $RUT have been in this Non-trending Market since late February this year. Knowing what type of market stocks are in is important, because it dictates our trading strategy. In calm Up Trend market, it’s a lot easier to make money. We enter and add to our positions during the Dips. We hold for longer periods of time. After a while, stocks will go up in Up Trend market and we are likely to make money. Down Trend is a whole other beast that we will write about in another post. In Non-Trending Market like right now, we have to be prepared for rapid small swings up and down. Therefore, we cannot hold our positions for too long. We try to buy lower, sell higher, and repeat. Note that while it is possible for volatility ($VIX $VXN) to drop down into a lower range, stocks can still stay in Non-trending Market longer. We are in that scenario right now. Stock market sometimes needs to spend time in Non-trending Market while the bulls and the bears fight it out. Eventually, one set of sentiment will prevail and starts to dominate. If that sentiment is bullish, stocks will pivot into Up Trend from Non-trending Market. Conversely, if that sentiment is bearish, stocks will pivot into Down Trend. $SPX $NDX $RUT are in Non-Trending Market right now, but in the intermediate term time frame, $SPX $NDX are likely to resume the Up Trend that started on 12/25/18. Know your individual market Many of you have asked for our opinions about European markets, Asian markets, emerging markets, gold, oil etc. We must apologize again and say that we do not trade anything but $SPX and $NDX. We monitor small caps, the Dow, global stock markets, as well as bonds, gold, $USD in order to identify macro patterns. But we do not trade them. We use this information to provide context for the movements of $SPX and $NDX. We have learned the hard way that trying to trade too many markets is likely to lead to losses. We cannot possibly understand the nuanced moves of so many different entities. We have no trading edge when we attempt to trade too many markets. We urge you to reduce the number of markets you trade in. Just ask yourself before you place a trade in a particular market: what is your edge in this market? Do you have any additional data to support your thesis besides chart patterns? Know your time frame We also urge you to pay close attention to the time frame in our analysis, and in your trading strategy. Stock movements are highly dependent on the context of its time frame. It is possible for stocks to start a small swing downward on the hourly chart, while they are still in an Up Trend on the daily chart. This is otherwise known as the Dip. Based on the questions we have received, we want to clarify. We always try to provide you with long term and intermediate term guidance so that you can understand the context of the short-term market moves. However, when we discuss the actual trade setups in our post, we are discussing short-term trades that are likely to happen in 1-3 days. We have found that it is possible to identify the high-probability short-term swings that may span the next few days using our trading system. Combining this with the information from the S/R table and good position management techniques can lead to a profitable short-term trade. Many of you have written to us to share your success in doing this. However, price actions in all time frames are driven by price levels, and supply and demand at different price levels. In other words, stocks will continue to go up until they become too expensive and bring out a lot more sellers. Conversely, stocks will continue to go down until they become really cheap and bring out a lot more buyers. It is not realistic to make projections such as “stocks will go up for 3 days, then down for 2 days, then up again etc..” We are highly suspicious of such time-based predictions because no one has that kind of crystal ball. This is why our trading system is based on price levels, supported by other indicators such as market internals. The rest of this article covers: Table of support and resistance levels Projections from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Updated Friday 10/18/19 at 8:34 AM EST
Projections based on market internals Yesterday we wrote “$VIX $VXN short-term charts show that volatility is likely to climb by a small amount, enough to bring about a Drop.” $VIX $VXN are likely to continue rising some more today Friday, as stocks are likely to continue the Drop a bit more today. However, the magnitude of this volatility rise will not be big. So as a result, the magnitude of this Drop will not be big. The odds are high that this Drop won’t go lower than Support1 (see latest S/R table above). The rest of this article covers: Projections based on market internals (more) Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. |
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