Evening Watch List for October 28th

Mish Schneider | October 27, 2015

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Tonight, I table all Economic Modern Family members, their foibles and shotgun weddings, (along with all other of my plentiful metaphors and attempts at humor) to bring you one of my favorite trading strategies.

First, to follow up with Monday night’s daily, 3D Systems made another new 2015 low on Tuesday. Keeping in line with the Truth or Consequences, New Mexico analogy-or how a name changed ruined a town, DDD clearly has major hurdles to cross.

Hopefully, this review of the 5 Criteria that must be met for a solid reversal pattern is one that will help you not only with DDD, but with many future trading decisions.

Using both a long and a short trade example, I will begin by restating the rules and then comment on how each of those trades met all the criteria.

Here are the 5 criteria of what makes a solid reversal pattern.

1. Price-made a new 60 plus day low or high.

2. An Expanded Trading Range beyond the average true range.

3. Volume-well over the daily average and even better if it trades closer to double the average amount.

4. Closing Price-over the prior day high/low.

5. A close 25% from the intraday high/low

Example of a Solid Reversal Pattern Long: Owens Corning (OC)

Owens Corning meets all five criteria, therefore is the perfect equity to use to illustrate when to buy a new low.

On September 30th, 2015, OC made a new 60 plus day low at 38.95. Number 1 check. The average daily trading range is 1.40. On that day, the range expanded to 3.15.Number 2 check.

The daily average volume on September 30th was 1,496,000 shares. That day the volume of shares traded increased to 3,100,000. Number 3 check.

The closing price on September 29th was 40.09. On September 30th OC closed at 41.91.Number 4 check.

The high on September 30th was 42.10. The closing price (41.91) was well within 25% from the intraday high. In fact, it was more like 10% from the highs. Number 5 check.

Looking at the market action in OC right now, it is trading between 45.00 and 47.00. A $3.00-5.00 move is about a 9% move higher.

Example of a Solid Reversal Pattern Short: S&P 500 (SPY)

On April4, 2015, SPY made a new 60+ day high at 189.70. The average range of 2.00 increased to 3.60. The average daily volume of shares traded rose from 128 million to 169 million.

On April 3rd, the closing price was 188.63. The closing price on April 4th 186.40 fell well below the prior days.

With a closing price of 186.40, it fell well within the 25% range from the intraday low at 186.10. In the subsequent days, SPY dropped to 181.31 or about 10% depending upon the entry level. Perfect.

Are there other Criteria to Follow?

We do have variations of the reversal pattern, including a 2-day pattern. We also have rules for entries, stops and targets as well as guidelines on how to trade an instrument that doesn’t perfectly meet all 5 criteria. To learn more please click here.

Miss the Economic Modern Family?

No worries. After the market gets through some important earnings reports and the recent buzz from the Federal Reserve Wednesday afternoon, I will revisit our Economic Modern Family and how they are preparing for Los Dias de Los Muertos.

S&P 500 (SPY) Held 206 the 200 DMA. Right now looks more like a correction than end of the rally Subscribers: Negative Positive in all except QQQ

Russell 2000 (IWM) Russell is stubborn as all heck. 112 back in focus 114 pivotal and over 116 clear skies til 119

Dow (DIA) Marginally held 175.62 the 200 DMA. Would prefer not to see this fill the gap to 174.91 for a sign of better strength

Nasdaq (QQQ) In a holding pattern so follow the range break up or down

XLF (Financials) Yesterday: (Wouldn’t be surprised to see a move to 23.80) in a day?

KRE (Regional Banks) Back under the 100 DMA but day before FED so hard to draw a conclusion

SMH (Semiconductors) 54.18 the 200 DMA

IYT (Transportation) Looks more vulnerable especially if it cannot hold 143.75

IBB (Biotechnology) Ran right to the 50 DMA. Very curious to see what it does now

XRT (Retail) Back to watching to see if 44 holds

ITB (US Home Construction) No close over 28 has led to a decline back under the 200 DMA

GLD (Gold Trust) Subscribers: Keep a mental stop of 111.90 to get long with a stop under 111

SLV (Silver) Like over 15.19 on a closing basis if holds 15.00

GDX (Gold Miners) GDX needs to clear 17.00, hold 15.40

USO (US Oil Fund) Folks are saying a move to 20.00 is going to happen. I find that hard to believe

XLE (Energy) Held the 50 DMA so still has my attention

TAN (Guggenheim Solar Energy) Broke down under the 50 DMA

UUP (Dollar Bull) 25.20 the 200 DMA

CORN (Corn) Subscribers: waiting for a weekly close over 23.80 to enter

DBA (PwrShs DB Ag Fd) Subscribers: If can clear 21.62 on a weekly basis, I’m interested

JO (Coffee) Subscribers: If clears 19.37 I am interested

***Market Tone: Short-term Negative 1, Intermediate-Term Negative 2, Long-Term Positive 4

NOTE: *All starred picks are from the automated list of picks (which now includes short picks!) denote that it has one or more of the 18 chart patterns we have used on the radar screen. For example, inside day, 2 days under floor trader pivots, phase change, brick wall or return to the 10 DMA, etc.

Tap here to view the September Live Coaching recording:
"How To Vet the Evening Watch Picks"

Longs:

ACN
ADBE**
AEM
ALKS**
AMZN
BMR
BYD**
CB
CHKP**
CMC
COST**
CSC
CTB
CTRP
CTSH**
CTXS**
CVRR
DHR**
EA**
EQIX**
EXPE
GME**
GOOG**
INCY
JNPR**
KIM**
LGF
LMT**
LPX
MAR**
MCD**
NFX**
NKE
O
PBF
SYNA