In last weeks report I said.
“It’s very likely Last Wednesday marked a “capitulation low” and the market is set to rebound here. We are positioned for that going into the week.”
While the market basically chopped sideways in a huge range the first four days, Friday it finally “resolved to the upside”. That was perfect because I’ve been anticipating it – even though I was a bit early.
Take a look at the note I put on the SPX 60-minute chart last week. Here’s a look at the daily chart as we head into the first week of February.
The SPX is very close to the 50% fib retracement from the recent high to low. That may act as resistance and there’s always a chance it falls back into the “choppy range” of last week. However there’s also a good possibility we get a “continuation rally” that carries a bit farther.
I drew a box on the chart and called it a “potential overshoot” zone because I wouldn’t rule out continuation up to test the underside of the 50-day moving average. I guess it all depends on where “they” decide to take it. Keep in mind that we might have seen “end of month” bargain hunting or the huge rally Friday could “run out of steam” as they like to say on TV.
That “overshoot area” could be a week or weeks away too.
The good news is that any little bit of follow-through will get our TNA to 48.00, which is the “sell half” target. Check the notes at the top of the Members Home page and also the chart I posted in the Chart Feed.
The other good news is that if the market continues to settle down (not start tanking again) it doesn’t have to just go straight up to get the XIV position into the green. XIV was my initial “iron in the fire” in anticipation of an end to the “plunge” that started right out of the gate this year. I was a week early on that but the nice thing about XIV is that two different factors can drive it higher.
1) the market rising
2) the market just settling down (less fear)
The VIX gets elevated when the market is being sold off hard, but even if it just stabilizes the VIX will drop. It’s possible VIX will remain elevated above prior levels so we’ll just have to see how it goes.
On the chart above take a close look at the 9-day exponential moving average. Ever since I started putting the 9-ema on the daily charts I’ve liked it as an indicator more and more. Stocks that have been trading below the 9-ema that pop above it, tend to get a “cycle up”. Not always but once the 9-ema starts rising and the majority of the “price action” is above it, the chart typically turns more constructive.
Right now there are a LOT of stocks that are breaking above or starting to break above the 9-ema. So I have a lot of new ideas in the works. Take a look at GDDY, I like the look of that chart. There are so many more starting to shape up now. I like the look of M too.
I’ll be adding new “ideas” to the chart feed this week for sure.
As I write this I have no idea how the Futures open tonight or what the open looks like tomorrow. The 14-day ATR (average true range) on the SPX is 44 points, which is 2.27%. This means over the past few weeks the SPX has a HUGE percentage range day to day (on average). This is something to pay attention to because it can mean a lot of intraday and day to day gyration.
We want to see the ATR start coming down as the market rallies. If things settle down – even if it doesn’t just rip higher immediately – that will be a good thing (for the way we are positioned now).
Make no mistake about the longer-term picture on the Monthly chart I posted a few weeks ago. On a longer-term timeframe I’m very concerned that we will see the recent lows break and are headed much lower.
But that has nothing to do with this week and the prospects for a decent snap-back rally – maybe even over a few weeks. As long as that “capitulation low” I pointed out last week holds – as long as the SPX is over 1812 – we are in a better swing trading environment than we were.
At some point – if the market continues to rally – the “buy everything” mentality will return and that’s where I’ll be entertaining the idea of getting short. There’s a good chance the market will build the “right shoulder” of a larger head & shoulders pattern on the daily chart. The height of the right shoulder is the main unknown at this juncture.
The first month of 2016 was a terrible swing trading environment. That’s why I wanted to try to play a rebound with ETF’s instead of individual stocks. Now that things are looking a bit better, it’s most likely time to get some quick trades going in individual stocks. Any rally could be short-lived so we still want to be careful.
So keep a close eye on your email and of course the “top alert section” of the Members Homepage. I decided that was a great place to keep everything up to date and post notes on a day to day basis. When you log in it’s the first thing you see so it couldn’t be easier.
Last weekend I rebuilt the entire “service” at investingsystems.com and your login page from now on is investingsystems.com/login
As you know I originally had it at .net but the load on the server was too much once I launched the site – so I had to “beef it up”. I actually prefer to have it at .com anyway but I wanted to apologize for any inconvenience during the switch over. If you are reading this you are good to go and we won’t have to worry about it again. The new site is fast and robust and I couldn’t be happier.
All this technical stuff I’ve been dealing with on the back-end has delayed me making all the new Help Videos, but they are forthcoming. I still have a few loose ends to tie up too and I’m working on a better “email alert” system. I might also look into the idea of “text alerts” but I need to do some research first.
I have another “addition” I’m considering – a new feature – but it’s still in the planning stage. Those of you that watch the Live shows will hear about it this week and we can see if it sounds like a good idea.
So join me for the shows if you can and we’ll see what the market decides to do from here. If you see TNA open at 48.00 or higher, go ahead and take half off the table.
I’ll see you this week!