Market Report 2/8/16

I posted this SPX chart last weekend.

The idea was that it seemed likely the S&P 500 would continue up to retrace roughly 50% of the prior big drop. 1950 was basically my target and I saw the potential for an overshoot. The momentum had turned back up and it seems like recently, moves tend to be exaggerated in both directions.

I know I wasn’t the only one thinking that and wouldn’t you know the SPX managed to tag a high of 1947 on Monday and then it was all downhill from there. A plethora of weak economic news and a ton of “earnings misses” seemed to be the culprit for the ugly turn of events the last few days of the week.

Friday was really the “disaster day” as the price action Wednesday and Thursday seemed like normal backing and filling – just retesting the lower end of the recent rage.

But as we see on the daily chart, Friday put “fear and uncertainty” back in the market. It’s back in the lower-end of the recent range.

SPX_D_272016

At this point anything below 1850 is the danger zone. It might actually be headed to retest the 1812 low area but it’s important that holds. I’ve been pointing out the Average True range a lot recently and the SPX 14-day ATR stands just under 40 right now.

As we know, that means that over the past few weeks the average “low to high” day the SPX travels 40 points, so it’s important to take that into consideration. A few up days could put it right back at the top of the range. Right now, with the weak close I think a lot of people expect a retest of the lows – but that may or may not happen.

Below 1800 is where things would get really ugly.

A few weeks ago I was looking for that rally that actually arrived, but it didn’t carry quite as far as I though (yet). The original TNA trade had two targets of 46 and 48. But I got a bit overconfident as the rally got going and decided to move the targets up to 48-50. TNA got as high as 47.69 Monday but then turned South quick.

As luck would have it last week I was working on getting the new Email Alerts in the new system and finally got it working Thursday. All the back-end work has thrown me off a bit lately and getting these alerts worked back in was important. I’d been talking about GDDY a few days before that and decided to go for it as the first new alert. The stock has a habit of moving down and then snapping back quickly, but Friday caught me off guard for sure.

With all the volatility we’ve been seeing lately I’ve been trying to avoid getting stopped-out easily and giving the market some time to work. I don’t like taking big hits though and in hindsight wish I had stuck with the original stops on the open trades. But there’s a good chance they snap-back and bail me out this time. It’s still very early in the year and there will be plenty of opportunities to score big wins as we go.

It’s also possible that I’ll take some shorts to balance out the long positions if it looks like we are going lower fast. As we go forward it won’t be that difficult to catch a few double-digit gainers and make up for any mistakes. I’m not happy about sitting on TNA and not sticking to the original plan but that happens sometimes and it just looked right on the chart a week ago.

Things can turn ugly fast and they certainly did last week.

I’m hoping for a respite this week and some stabilization and even a move back toward the upper-end of the range. When the ATR at 39 it can move big in either direction. The fact that so many popular growth and momentum stocks have been crushed recently is quite concerning. It seems like the one thing you don’t want to do is hold anything over earnings. All open positions will be closed ahead of earnings no matter what.

So going into this week I’m just going to try and see what the market decides it wants to do from here. Another move down early in the week might just set up another big snap-back rally at the point of maximum pain. But the trick here is being able to get out of the way should the market go into a freefall. That seems unlikely but always possible.

As I pointed out on the Monthly chart near the beginning of January, the long-term picture is not good – on the Monthly timeframe. However back in 2000 and 2008 the market “snapped-back” to meet the underside of the 10-month moving average both times (before it really got bad). I’m thinking the same thing will happen again. I expect in the coming months the market will bounce up to the underside of the 10-month moving average.

At that point, the “buy everything” mentality will have likely returned and they will be saying we are “out of the woods”. That will be the time to think about getting short for the next move down.

The move we saw last week is most likely “shaking the tree” to shake out weak hands, maybe retest the area of the lows, but it’s probably not doomsday just yet. This week when Janet Yellen speaks it’s likely she will “back-off” a bit from a March rate hike and the market could easily use that as an excuse to rally big. Things are dicey right now but we just have to take it as it comes and see what manifests on the charts.

Join me this week for the live shows if you can and keep close tabs on the Home page of the members section for updates.

See you there!