July 6, 2016
By Geoff Bysshe
This is the first of many regular reports / videos that I’ll release during July to walk you through how to trade the July Trend Trade. These reports assume you’ve watched the training video “Session 1: The Trend Trade Patterns”.
Yesterday, July 5th was the second trading day of July so by definition it was the first day that the July Trend Trade could begin with a break out.
As I stated in the training, due to July 1st falling on a Friday before a long weekend, I’m going to give more consideration the first 2 days of July being the initial July range. However, technically we’re still basing all the breakouts on the first day.
This means that rather than act quickly I’m waiting for more confirmation. In different year’s I’d be more bearish after yesterday’s pattern of all 4 market watch charts (SPY, DIA, QQQ, IWM) having closed below the July Opening Range (OR) low.
Note the QQQ did not have a convincing close (only 3 cents) below the OR low so that makes it suspect.
None the less this pattern of all 4 closing below the July OR is bearish, and if these market break below their July 5th daily low AND their 10:00 Opening Range low today (July 6th) this is a bearish July Trend Trade pattern. In fact, it is one that could suggest we’ve put the high of the month in for weeks.
But as I said, let’s not rush to conclusions. We need that 10:00 OR and daily low break for confirmation, and…
If you have not had a chance to look at the Trading Essentials (TE) weekly mentoring video that was posted over the weekend please do (it’s here).
The reason the TE mentoring video is important, is because it explains that I’m waiting for the market to close below its 10-day MA and then continue lower to take a more bearish stance on the market in general because of the Brexit reaction and because the SPY and IWM remain in a bullish trend.
If you want to be more aggressive (quicker) to become bearish. The July Trend Trade initial OR break has given you good reason to do so if a 10:00 OR breakdown happens today along with a break below the July 6th daily low.
Patterns to watch for…
As per the notes above the market is in the first stages of a bearish July Trend Trade. In this situation traders looking for bearish trades should look for ETFs and stocks that are breaking down in the way I’ve described above. It would be best if the trade also has a negative market phase and or is trading under the 10-day MA.
Traders looking for bullish trades still have some very good options until the July Trend Trade confirms the negative trend. This is because markets often “break and reverse”. I’m sure you know what I mean by this in general.
In other word the market had one negative day, and as I said above, this year it’s very important to insist on confirmation of the initial break.
As a result, a perfect bullish head fake would be for the markets to avoid a confirmed break down, and instead, reverse to create an OR breakout to the upside this week.
If you want to play the bullish side, the aggressive way to do this is to look for ETFs and stocks that did not break down or even broke out to the upside yesterday.
Here is a short list of ETF and stocks for consideration on the long and short side based on what I’ve outlined above.
In the situations where I have found the trade from our July Alerts page, I’ve explained their look on the alerts page so you can see how it works.
The alerts page gets updated on a delayed basis during the day and then the count of the number of days is updated manually in the evening. Therefore, my recommendation would be to use it as an end of day or delayed way to find ideas you they watch more closely with your trading platform during the day.
From the Alerts page:
Because the whole market broke down yesterday the alerts page is full of break downs. A break down is indicated by the “July OR Days Under” column having a “1.+” and being red.
XRT – It is right at its 50 DMA and a confirmed break down below the July 6 low would put it under its 10 DMA and it would be a negative implication for the general market so I’d watch this closely.
IYT – It is at major resistance and like XRT, a confirmed break down below the July 6 low would put it under its 10 DMA and it would be a negative implication for the general market so I’d watch this closely.
ADSK – Rallied back up into major support and has not recovered from the Brexit sell off very well.
The following stocks that were highlighted in your weekly mentoring videos for Trading Essentials and Real Motion did NOT breakdown yesterday:
EWZ (did break, but video suggested to wait for this area so look for a bullish reversal and a failure to confirm yesterday’s break)
LNG – did break technically but not by much and with its Real Motion pattern a move higher with out confirming its break lower yesterday will look very good. Watch this closely for a July OR breakout.
From the Alerts page:
When the markets break down, the alerts page is great for identifying the stocks that are unusually strong! There were not many so I’d look at all of them (the ones that have a green highlight). It doesn’t mean they are all buys now. For example it’s late to get in the gold, TLT, IYR, XLU trades but if they pull back over the coming days or weeks you should have your eye on them.
AMZN – On a Real Motion basis this looks suspect, but it’s a market leader that looks poised for a breakout that could run if it gets through 732, and the fact that refused to break yesterday is bullish.
Biotechs – as per last week’s TE mentoring video this area (XBI, IBB) is one to watch if it has a July OR breakout to the upside and yesterday it held up well. You can see that in the ETFs and stocks in this group that have a “1” in the “Days In” column
ORLY – Similar situation as AMZN above – the July range may be tipping us off to an upcoming breakout.
VRSK – This can be volatile, but the July action is bullish and a break of 82 would be big. A stop under 80.50 is only 1 ATR.