Trader Mike's Notes
I'm seeing quite a few setups like this tonight. This is one of my favorites -- looks like an orderly pullback with, so far, a successful test of the 50 DMA. Stochastic reached oversold today, it made a hammer / bullish doji... what could *possibly* go wrong? ;-)
I'm always trying to stress to people how important it is to get a read on the broad market. That's why the General Market Analysis page exists. Lots of bearish stuff on display there these days. Today it shows that the Wilshire 5000 -- one of the broadest indices there is -- broke its 200-day moving average. It joins the Russell 2000 and Dow in that respect. The table at the top of that page also shows that the S&P 500 (SPY) bounced off its 200 DMA today. You'll also see that ADX/Directional Movement is trending down strongly for QQQ and DIA. So the trend(s) are clearly down right now.
If you're looking for long opportunities I hope you realize that you're fighting the trend. If you're not comfortable playing the short side, remember that cash is a position! And it's often a great place to be. You can build your watchlists and preserve capital so you can trade in easier market environments.
Obviously this isn't a pretty picture -- if you're a bull. There was some hope that QQQ would be able to regain its 50-day moving average at the end of last week. Those hopes were dashed by Monday's gap down. Note that QQQ has gapped open (up or down) every day this week. That's a sign of a news-driven and/or skittish market. At this point the bulls must just be hoping to be saved by peace & prosperity breaking out over the long weekend. :-)
It will be interesting to see where the market can find support. QQQ is right at a bit of technical support from the late March lows but after that I don't see much support until the 165 area.
I mentioned the weakness in small caps and the poor market breadth in my April 17th note. Well the breadth is even worse now as the % of stocks above their 50-day moving averages has slid to 33% (see the General Market Overview page). IWM has been under its 200-day moving average for 9 sessions now and it's on the verge of taking out its March low.
When you zoom out on the daily chart and add a 200 DMA, it makes the December - January rally look like nothing more than a bear market rally which was mostly capped by the 200 DMA. Back in early spring I was wondering which part of the market was showing the *truth* -- small caps or the larger cap indices. It's looking like it was the small caps. There's not much to like about the IWM chart at this point if you're a bull!
This relatively recent IPO has had a great run. Its IPO lockup recently expired and they did a secondary last week to let some of the locked-up folks sell. Stochastic is oversold and it looks like it has good support at 27. Another one for my "When the Market Turns" watchlist.
One for my "When the Market Turns" watchlist... I've been stalking this since it reported earnings the end of last month. It's now got oversold stochastic and looks like it's making a soft landing on its 50-day moving average.
Obviously things are getting ugly right now. It's tough for me to care much about the technicals when the US - China trade war is driving the action. Nevertheless, I am paying attention to technicals.
In my last note from a few weeks ago I wrote about how I didn't like the breadth of the run to new highs in the indices. The S&p is down about 3% since then and QQQ is down ~ 5%. Based on the indicators I track we're still not quite at oversold levels. Stochastic (14, 3, 3) is getting close to oversold. The other oversold indicator I like to track (see the General Market Overview page) is the % of stocks above their 50-day moving averages. That dropped significantly today to 36% as SPY, QQQ, IWM along with ~1,400 stocks broke their 50 DMAs. So we're within a stone's throw of the low 20 percents, where bottoms often start to form.
I've got my eyes on some obvious support levels -- the March 25th low (QQQ is right there now) and March 8th low -- but, again, I'm not banking on technicals to bring us out of this tailspin. I think we're gonna need some significant news on the trade war front.
This is more a broad market note rather than a MRK one. If you haven't been solely trading (or holding) large caps the last few weeks you've probably noticed a lot of choppy trading. The major indices have been hiding a lot of sloppy & choppy trade. You can see it a bit by comparing IWM to SPY.
Based on the alerts I was getting on my watchlists today I couldn't believe the indices were basically flat for the day. Lots of names got crushed today. That's what got me to look at MRK. I saw on the General Market Overview that "Expansion Breakdown" appeared 5x more than normal today. When I clicked through to view the charts breaking down there were a lot of healthcare names on the list. Many of those were killing it just a few weeks ago. It's almost like a hedge fund holding these stocks has blown up.
But it's not just the medical stocks, a lot of the hot tech stocks are also sucking wind while things look fine based on SPY or QQQ. That's also borne out by some of the other indicators on the General Market Overview page. Advancers-to-decliners was 19:31 today. The % of stocks above their 50-day moving averages is at 54% -- not what I consider healthy when the major indices are cruising along near all-time highs. As a friend of mine likes to say when discussing the market: be careful out there!
Just noting that certain medical stocks are going bonkers day after day in this current environment. This recent IPO was up 16% today to a new high and has now more than doubled from its IPO price. Also see NVTA, GH, INSP, TNDM, NSTG, etc. Definitely a sector to pay attention to these days.
Here's a chart I love when looking at the last year or so but when I zoom out multiple years it's a nightmare. It does appear that the company is turning the corner -- I haven't yet looked at their earnings. (Along with being in the life sciences space, this is reminding me of the charts of two of my recent big winners -- TNDM and NVTA.) So it's going on a watchlist and I'll be looking for a pullback setup I like.
I really like the pullback here. It's got *potential* nearby support from the 50-day moving average and its lower Bollinger Band. The wildcard here is that the IPO lockup just expired, so there are potentially a lot of shares ready to be sold. I like the company (well, their technology) and may buy some in my IRA where I'm more lenient about letting a position move against me.
Moves like this make me rethink my trading rules. I won't enter a position just before earnings. This had earnings today but late last week it had back-to-back days of my favorite combination of signals -- a Calm After Storm with a Non-ADX 1,2,3,4 Pullback. It's now up 50% in 3 sessions... without me.
This one is interesting to me. I know the company from working in the IT industry, so I might be a little biased. It's another one which had a good initial earnings reaction but then sold off. I'm a little concerned that the now 3-day drop has gone a little too far and has done some technical damage. I'm expecting the bulls to at least be able to create a little bounce some where around the current price or the 50 DMA which is just a few points lower.I should add that one of the things I like about running my scans and/or looking at the site's signals is that can help to overcome my feelings that I'm not being objective. The reason I saw this is because, as usual, I ran a Combo Scan combining the "Calm After Storm" and "Non-ADX 1,2,3,4 Pullback". So I can justify my trade (if I make one) based on that alone.
This has now filled its post-earnings gap and I'm on watch for a reversal. September had a resistance zone from about 230 - 238 and that *should* be able to now turn into support.
I thought this IPO would have done much better had it not came public in the middle of the worst market in 10 years. It reports earnings tomorrow and I can't wait to see how it reacts. I think the IBD crew will be all over this "IPO base" if it can make a new high.
This stock pops up on my radar a lot. I've traded it 3 times over the years, with 2 winners and 1 loser. That's not surprising to me looking back at the chart -- it just doesn't trend very well. There are a few huge gaps followed by weeks of sideways trading or slow drips back to fill the gap. I've decided this is one I just won't trade. Too bad I didn't buy it in my long term account when I first traded it at 26 in June of 2016. Oh well.
If I was a true believer in this company (I'm not, I know nothing about it) I'd give this a shot on the long side here. It looks to me to be turning the corner. It had a good initial post-earnings reaction but got crushed at its 200-day moving average. It's now trying to bounce off the 50 DMA... but here's where the true believer part comes in. When the 200 is above the 50 DMA I consider the area between those two lines to be "no man's land". By definition it's long(er) term bearish and short(er) or intermediate term bullish. There are easier trades to take, IMHO.
Here's an interesting recent tech IPO that broke out of a Bollinger Band Squeeze today. The company reports earnings on the 28th though so it could be dangerous to get in and hold through that report.
Some wild action in this after falling on earnings and then rallying on the release of its Fortnite killer/competitor. It appears to be trying to bounce off its 20 DMA & I'm looking for some follow-through, like a close above Friday's (Feb 22nd) high.
A nice set of signals on this today -- Bollinger Band Squeeze + Upper Band Touch, Expansion Breakout and a Pocket Pivot. Looks like it's ready to complete the cycle of range expansion to contraction back to expansion.