I love days like this-not only are they super rare, but also totally cleansing in that we flush away the weak and leave the raptors to swoop down on the scraps.
Now, I don’t want you to think unkindly of raptors as they (we) serve a tremendous service to the trading community. Unlike the public, they will scalp, maybe short, but most likely just circle the area in cash waiting and watching for road kill.
The small caps or Russell 2000s were the “tell” to the wise as they never really followed the rest of the indices down even when the Dow at one point, dropped 450 points.
Another “tell” was Biotechnology or IBB as it briefly pierced the 200 DMA only to return above it soaring late in the session. What do I mean by the “tell”? Knowing to sell any longs a while ago once IWM broke down in September long before the Dow broke (in fact, the Dow was making new highs at that point.) And currently, to know not to short as the Dow made new multi-month lows while IWM held up relatively well.
Janet Yellen and Fed came out with the Beige Book on Wednesday. What seemed irrelevant at the time of the announcement, turned out as perhaps the biggest catalyst for calming the market down.
But for how long? Neflix, at time of writing, tanked $120 after the earnings report. Maybe now they will release more recent movies then ones from pre-1975 on their internet database!
Let’s look at volume patterns. IWM had more than double the average daily volume on a green possible reversal day. SPY had 3 times the daily average volume on a down day-that’s clearly a potential blow off bottom. Perhaps the most interesting is the long 30-year Bonds or TLTs. That had over FOUR times the average daily volume. Totally ready for a blow off in the works.Needs to confirm as always.
If the volume teaches us anything, it’s that now is one of the best times to look for long entries if you know how to asses risk/reward and even more importantly, know how to calculate position sizing. Panic, road kill, and raptors, oh my!
S&P 500 (SPY) So about that volume-if this was a blow off, then would have to have either an inside day closing green or given recent volatility, a move and close over 187.69 Subscribers: Negative Pivots in all
Russell 2000 (IWM) Closed above the monthly moving average which means that the worst could be over for sure. Another new recent low and strong finish-good volume-keep eyes here
Dow (DIA) Like SPY, volume pattern suggests possible blow off.
Nasdaq (QQQ) Looked great on the close clearing the 200 DMA until NFLX-now, anything can happen here.
XLF (Financials) Flush for sure, but still defensive unless it clears 22.35
SMH (Semiconductors) A strong possible reversal pattern. A green inside day would be good, even better, a close over the 200 DMA
IYT (Transportation) A definite candidate as this stayed over the 200 DMA
IBB (Biotechnology) Another strong candidate as it held the 200 DMA
XRT (Retail) Yet another possible reversal pattern. Like all aforementioned, we need a confirmation
IYR (Real Estate) Holding the 200 DMA and has to clear the 50 DMA
ITB (US Home Construction) Big day here-love to see the 10 DMA clear
GLD Although this rallied, when the market was down 450, I thought this would continue to soar. It didn’t. Watch the 50 DMA now overhead as resistance or a new buy point
Metals and Mining (XME) Yet another reversal pattern in the works
USO (US Oil Fund) Doji at the lows-tired of dropping? Maybe
OIH (Oil Services) Another reversal pattern in the works
XLE (Energy) Look at ERX-talk about volume patterns-EIGHT times the average daily volume
XOP (Oil and Gas Exploration) Another reversal pattern in the works
FCG (First Trust ISE Reserve NatGas) Another reversal pattern in the works
TAN (Guggenheim Solar Energy) Subscribers: Love this of course, but felt it prudent to wait another day and then we can go in against the 23 monthly Moving Average
TBT (Ultrashort Lehman 20+ Year Treasuries) Mirror of TLTs, TBTs may have seen the bottom-for real
FXI (China Large Cap Fund) Like the bounce off the 200 DMA
JO (Coffee) Subscribers: Consolidating near highs
Longs: On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Note: Anything that is on this list is a candidate for a swing trade-(of course market condition is a factor) -use the max risk mentioned along with an opening range stop using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly
Category 1: N/A
Category 2:N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy an opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry: (Opening range reversals are good on anything above S1)
MYGN Now, only if 39.05 clears is it worth a try with stop in this market under 37.80
Category 4: N/A
Phase Change:
HPQ Announced a buyback of shares and had a reversal very close to the 200DMA at 32.9-that has to clear
GT Big call buying inside day and possible slingshot if clears and holds over 20.30
HSP Slingshot on the 200 DMA which has to confirm over 48.88 R1-then good for mini to swing risk
GLPI Reports 10/28. Had a reversal right against the 10 DMA just as the market was melting down so didn’t trust it-overall, I like the bottoming formation and will watch it again
KSS Had an ORR but under S1 so passed. Now, still good against the 200 DMA if holds and clears R1
WFM Reports November 5th. I jumped the stop but still like it with a doji day if clear the 10 DMA or 37.40
DDD Reports 10/28/14. Really like this too and now over 41.90 the 10 DMA like risk to 40.75 to keep it tight
SFM What a move! Now, an ORR is good against 28.90 the 10 DMA. Not afraid though to buy this on strength over the 50 DMA 30.12
Shorts: Have to wait for new setups
Category 5: N/A
Category 6:N/A
Best Best wishes for your trading,
Michele Schneider
