December 12, 2018
By Geoff Bysshe
There’s a lot of green on the screen today, but it probably didn’t feel like a very bullish day.
Given a very unusual bullish pattern in the QQQ, I’m disappointed that the A.M. strength didn’t hold in that index. I’ll explain the pattern below.
There are two reasons, however, why I’m not surprised that the A.M. enthusiasm faded, and didn’t recover.
The first reason is one that Keith pointed out in this commentary yesterday.
As Keith explained yesterday, one of the market’s patterns has been to have a big move in the morning and then reverse it. I’ll add that this has been especially true if the initial move was fueled by a tweet about tariffs.
In addition to the news induced pattern at work today, the manner in which the markets rolled over, and did not recover, was right in line with what we teach in our AM Trader (Opening Range) training.
Before we look at the intra-day price action, the unusual bullish pattern in the QQQ can be seen by the looking at the slope of the 10-day moving average (magenta) in the chart below. It’s clearly sloped up.
What’s unusual is that the market has spent several days under the moving average and it has maintained its upward slope. This is rare even in Bullish Market Phases (Price > 50 DMA > 200 DMA). It’s even more rare in markets that are not in a bull phase.
In fact, you have to back to the Warning Phase in February 2015 to see a similar pattern that was not in a Bullish Phase.
This ‘bullish’ slope becomes more actionable when the market trades back over this upward sloping 10-day moving average. Please don’t assume that will happen based on slope!
With this daily pattern in place, it seemed that today’s 30-minute opening range breakout might have the potential to lead to a good solid trend up day.
Unfortunately, there were a few factors working against it. Most notably, only the QQQ had this pattern - SPY, DIA, and IWM did not.
Then the AM Trader (Opening Range) tactics gave you red flags that the rally in the markets was rolling over in a way that would likely not recover.
The QQQ’s looked fine, but as we teach, at least a one or two of the SPY, IWM, and DIA should be following the Opening Range pattern of the day. The early warning sign was that the IWM didn’t make a new high around 1:15 when the others indexes did.
That’s not enough to kill a rally, but then…
The bigger problem came in when the SPY broke below its Opening Range high. At that point it was also back below its prior day high. The same was true for the DIA.
Furthermore, the IWM, was following the same failure pattern at the prior day high.
So while the QQQ’s were doing everything right, the rest of the market was doing something else.
This was very disappointing, but not unexpected, and for the A.M. Trader… Not hard to see coming.
As of the close of today, tomorrow sets up the same way.
Now you know what to look out for if the market moves higher, and if it moves lower remember, the 'bullish' actionable part of this pattern doesn't kick in until you have an Opening Range Breakout over the daily pattern. In this case, the daily pattern is the upwardly sloping 10-day moving average.
If you’d like to see a recent training webinar on improving your trading with Opening Range tactics, click here.
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S&P 500 (SPY) 270.40 is the number this must clear to improve outlook. The 2018 low is 252.92 made in February.
Russell 2000 (IWM) Weak performance even on the gap up morning. 145 has been a pivotal area so it could constructive if it holds that level. However, 150 the big resistance to break. Any weakness under 145 is dangerous.
Dow (DIA) Short-term support could show up at 242.70, then 240 is a big level. Ultimately, 233.20 is important support and the 2018 low made in April. And close under 240.50 would make that more likely. 250 - 251 is significant resistance looming overhead.
Nasdaq (QQQ) Still needs to clear back over 167, and remains in bear phase. Major support begins at 160 with the recent low at 157.13.
KRE (Regional Banks) The 200-week moving average is at 50.12 just below today close and needs to hold or look for much more downside. Look for resistance at 53.00-53.30.
SMH (Semiconductors) Has a very well defined and level consolidation pattern with the high area being 98 and the low around 88.00. The exact low is 86.95 which is also a key support level on the weekly charts. A break of this level could trigger a waterfall decline.
IYT (Transportation) Inside day pattern which indicates potential for a significant move in either direction soon.
IBB (Biotechnology) Like SMH it has a very well defined and level consolidation pattern. 104.75-105 resistance with 100-101 major support. Currently only member of modern family with positive volume patterns and relative strength
XRT (Retail) Inside day pattern which indicates potential for a significant move in either direction soon. 42.40 is support and the 200-weekly ma. 47 is big resistance area and would need to clear this on good volume to get bullish
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