Signals & Trading Plan for Wednesday 8/21/19

Updated Tuesday 8/20/19 11:48 PM EST

Current market context
$SPX $NDX are currently in Major Pullback2 within the Up Trend that started on 12/26/18.  Major Pullback2 arrived on 7/31, with plenty of warnings from market internals.  

Within the current Major Pullback2, we have had 2 bounces due to oversold conditions.  The first was from 8/7 to 8/8. The second bounce was from last Thursday 8/15 to Monday 8/19.  By the end of Monday, oversold conditions were disappearing.  So today, prices pulled back by a small amount. 

However, for the most part, trading activities were subdued.  No one wants to take a heroic stance before FOMC minutes tomorrow Wednesday, and Fed Camp in Jackson Hole this coming Friday 8/23.  

Table of support and resistance levels
This table has the same values as yesterdays.  Conditions have not changed very much.

Updates from market internals
By end of day yesterday Monday, CBOE equity put/call ratio indicated that stocks were no longer oversold.  Today this ratio is in the process of anchoring itself to rise back up again.  When this ratio rises past its mid-level, it indicates that traders are bearish. 
 
Similarly, $VIX $VXN charts are forming a pattern indicating they are ready to rise up again soon.  Rising volatility is bearish.

NYSE and Nasdaq Advance/Decline lines turned down today, switching back to the bearish pattern.  This is particularly true for Nasdaq A/D.

NYSE and Nasdaq percentage of bullish stocks dropped down again, confirming the bearish message from the A/D lines. 

So the message that market internals are saying is that under the hood, stocks have gone back to the bearish bias. 

Planning your trades
It is important to note that this bearish bias may persist while stock prices climb higher.  When this happens, we have a bearish divergence from market internals.  And market internals usually win with their messages.  So at some point soon, prices will catch up with the bearish attitudes of market internals.  

That means potentially more serious selling ahead.

However, it still does not pay to jump in front of the Fed.  Be patient. Let market internals have time to really form a bearish divergence.  

With the potential bearish divergence as the backdrop, you can go into Friday Powell speech looking for bearish setups to enter short.  

But again, give the signals time to develop.  Don’t waste your time and money with the small trades between now and then.

Disclaimer
The information presented here is our own personal opinion.  It is intended to supplement your own research and trading systems.  Consider it as food for thought. We are not registered financial advisers or licensed brokers.  We make no guarantee that anything will unfold according to our projections. While we offer scenarios for you to consider in your trade planning, know that you are proceeding at your own risk if you follow our suggestions. 

Note that we trade highly risky 3x leveraged ETFs.  You may end of losing a lot of money with them. They suit our portfolio, but they may not be appropriate for you.    Please read more about them before trading them.