Trader Mike's Notes
The melt-up we've been having came to a screeching halt today. The S&P 500 has given back about 3 weeks' worth of gains yesterday and today. Yet it's still solidly above its 50-day moving average.
Speaking of 50 DMAs, many of you know that I always keep track of the % of Stocks Above Their 50-Day Moving Averages (graph of that is on the General Market Overview page). I use that as an overbought / oversold indicator. I find it to be more useful to identify oversold than overbought conditions but once it rises into the mid-70s I get a bit worried about the market being overheated. Well it jumped above 80% a couple of weeks ago and even got above 90% last Friday! Today it plunged down to 75% as many stocks were driven back below their 50 DMAs. I view that as a healthy development (for now) as the action in many stocks had gotten ridiculous and this selloff is wringing out some excesses. My bullish side would like to see this indicator stay above 65% over the next few weeks. I'm building up a wacthlist of stocks I'd like to buy at or near their 50 DMAs
The Russell 2000 is the first of the major indices to slip back below its 200-day moving average. It's also notable that the financial ETF (XLF) is also below its 200-day moving average.
There are a few airlines on the Non-ADX 1,2,3,4 Bullish scan today. That gives a nice, clearly defined stop-loss spot (under today's low) -- assuming they trigger entries. -- Edit, the next morning during pre-market trading: The airlines are gapping down significantly so I'm pretty sure none of those setups will trigger entries. (The trigger for that setup is trading above yesterday's high price)
A dead cat bounce or the start of a lasting rally? I won't pretend to know. What I do know is that the indices have now come from having very oversold stochastic readings and sliding down their lower Bollinger Bands to now having overbought stochastic and touching or almost touching their upper Bollinger Bands. That tells me the *easy* money has been made. It does feel like we're back to a more rational market & I look forward to seeing what the scans turn up in the coming days.
This isn't necessarily a Google note but I wanted to mention that it, along with a lot of other *historically quality* names, is showing up on some of the oversold scans. If you're a long term investor and looking for some bargains, those are great scans to run in times like these. I like to sort them by Grade (relative strength) and see what names I recognize which are rated A or B. A great way to build a watchlist
This is more of a general note than one specific to IWM. This and the Dow broker their 200-day moving averages today. All the indices are now well below their 50-day moving averages. The volume on these last few down days has been very high. For those newer traders who have never seen a decent sized decline and only know how to buy dips, it may be time to change your tactics.
This (as always) is a good time to review the General Market Overview page (in the Research Menu). I haven't trusted the rally this year because it's had poor breadth. That's very clear in the "% of Stocks Above Their 50-Day Moving Averages" indicator on that page. While the indices were cruising to all-time high after all-time high, that indicator showed that only about 50% of stocks were even above their 50-day moving averages. That kind of rally usually doesn't last for long.
THis is why I love the "Hot IPO Pullback" scan! Up over 70% since that his a few times last week
This is going absolutely nuts! It triggered the Parabolic Rise signal today, which I created to find potential shorts. And I shorted a tiny bit of TSLA just before the close. I *think* this will be lower in a couple of week. I just hope it doesn't hit my stop first.
The best development I saw today was this move by the small cap index. It's finally joined the larger cap indices in making a new 52-week high. This is helping the breadth indicators to look a little better and give a bit more legitimacy to the market's strength (IMHO).
The market remains a sloppy, news/headline/tweet driven chopfest. Tonights headlines will make today seem like a great win for the bulls but the thing that screams out to me is all the bearish shooting star patterns made today. The market sold off pretty hard in the last 30 minutes, causing the indices to close near their lows for the day. I'll be on the lookout for continued selling on Monday.
So we got the *easy* bounce back to the 50-day moving average. This now looks like the 50 DMA will become resistance. Of course, in this market environment one (seemingly) bullish tweet can send the market flying, so I won't put too much faith in the technicals acting like the *should*.
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!