Market Report 2/22/16

One week ago the SPX was 1-day off the dreaded “retest of the lows”, Take a look at this chart I posted in last week’s report.

It was difficult to tell at the time whether the market was going to hold the previous low area or not, but the fact that it seemed like a sort of “capitulation” event (then bounced off it) at least offered some hope going into this past week.

And wouldn’t you know it, this past week saw a huge rally off the lows.

So the idea I had last week about the SPX forming a sort of “W” pattern and meeting the underside of the 50-day moving average still seems plausible. You saw the chart from last week so here’s how it looks now.

SPX_D_2212016

As you can see on the 15-minute chart I posted in the Chart Feed, the market closed OPEX right on the fence post. We won’t know until Monday how the open looks and which direction it decides to take from there.

As it stands now the SPX has moved back up into the range between 1865 and 1950 and Friday’s bar was basically right in the middle of the range. The run-up off the lows was swift and significant so it’s possible we see some backing and filling and some consolidation at lower levels. But it seems like there was a lot of short covering and “trapped shorts” so it won’t surprise me to see the underside of the 50-day get hit in the next few days either.

The ATR is drifting down and I think there’s good support around 1865-1870. The key level on the upside is 1950 which completes the “W” pattern. Last week someone on CNBC said that they wouldn’t trust the rally until it broke over 1950. The way this market behaves these days it could easily break over that and run up to 1960 or a bit higher and then reverse sharply.

Honestly it seems like a “sell strength and buy weakness” environment. Down the road it’s entirely possible the market breaks over the 50-day and extends the gains over time. I think that’s the “pain trade” – a rally that carries further than anyone expects. Perhaps it trades all the way up to the 200-day and by then everyone thinks “we’re out of the woods” and the “buy everything” mentality returns. That’s probably where we’d want to go short.

Right now we are in the “skepticism” phase and most of the guys on TV are not buying into this rally at all. It seems like quite a few traders expect the 1810 low to break sometime soon. I can’t remember the last time I heard so much talk about the potential for a crash.

I honestly have no idea what transpires from here but I can say that “all bets are off below 1800”. The funny thing about that is I can almost envision a scenario where we get a leg down that slightly undercuts the last low and then they rally it up from there.

Like I said, that seems to be the recent nature of this market.

So last week I cut the TNA trade loose (hit the stop for a small loss) and I feel relieved. I never intended to hold it more than a short time and you can see what happened on the chart I posted in the Chart Feed. The rally off the lows also bailed out the GDDY trade just in the nick of time before earnings. I’m rooting for further strength here to do the same thing with PAYC and XIV, the only two open trades. Paring everything down to a couple open positions made a lot of sense and now we have a lot more options open going forward as far as new short-term trades.

I’m starting to see more charts with good potential as far as individual stocks and I will be posting some new ideas in the Chart Feed before the open Monday. Regardless of the overall market, even if it’s just choppy and just trades in that range, a lot of individual stocks look like they could be setting up. It’s really a matter of the market not going back into “everything goes down” mode again in the near-term. I get the feeling that many stocks got overdone to the downside and are setting up for at least an oversold bounce.

I’ve noticed that some biotech stocks are starting to act better and that’s one sector that could be in for said oversold bounce. Even on the “few day” rally it was hard to get a good read on which sectors might start leading because it seemed like it’s “everything or nothing” but that might change on further strength. We are getting towards the tail-end of earnings season but there are still a lot of big names that will report this week.

Basically I’m going to be looking for short-term trading opportunities and likely looking for smaller and quicker gains. And going forward I’m going to focus more on setting initial stops and sticking to them. The biggest problem is that I don’t want to get shaken out “at the open” because every day there are a ton of stocks that have anomalies in the first 5-minutes of trading. That’s the most difficult part of setting a hard stop. But as we’ve seen, it’s easy for one to “get away from us” on the downside without a stop. This is the thing I’m struggling with most here. It always seems to happen on mornings where I’m doing the live show which makes it harder for me to focus on things. I’ll find a way to resolve that because I need to be able to focus on both.

So I will be setting up trades based on what I see on the chart and what makes sense at the time. My inclination is to start of with wide enough stops that won’t get hit on normal volatility but prevent anything from getting away to the downside.

I mentioned Friday on the show that I only plan to send Email Alerts on new Pending Trades, and not send an email out every time a stop or target gets moved. At least that’s the way I planned on doing things but I might re-evaluate that. The reason I mention this is because it’s a good idea to log in the site frequently and take a look at the “alert section” right at the top of the Members homepage. You are literally 2 clicks away from that.

I use FireFox and have the shortcuts toolbar displayed and have a shortcut right to the login page of the site. I click that and it brings me to the login page with the username and password filled in, I click the login button and there’s the Member homepage. There are several ways to accomplish the same thing but it’s important to have quick and easy access and that’s the easiest way I know of to do it. I recommend you do something similar if you haven’t already.

So this week if the market cooperates even just a bit I’m planning on jumping in and out of some trades. The Email Alerts are working perfectly now and you will get an email on all Pending trades. Once they are open then updates are posted on the site in several places so they should be easy to follow along.

Please join me for the morning shows if you can and we’ll take a look at the overall market and some stocks that I have on my watchlist. I’ll get some new ideas posted in the Chart Feed as well.