July 28, 2014
Mish's Daily
By Mish Schneider
Bird’s Eye View Statik Selektah Verse Joey BADA$$
From a “student of the market” perspective, this is truly an incredibly fascinating summer market. From a “trader’s” perspective, this is somewhat agonizing and certainly a test of one’s resolve in one’s trading system type of market.
The most difficult market to trade for a swing trader is one that goes contrary to typical swing trading formulas-buy strength, sell weakness. Had one followed that formula for most of this year, it could have done some real damage to one’s P &L. So, how does a trader adapt to buying weakness and selling strength?
For me, it’s all about knowing the phase the instrument you are trading is in. Once you know that, then you must calculate the risk/reward relative to that phase keeping in mind where the current price lies.
To that end, let’s examine the Russell 2000s. No surprise that has deteriorated in phase, entering an unconfirmed distribution phase (price under the 200 DMA). At the same time, it held the July 17th low 112.20. Therefore, that becomes the risk point to keep in mind. What has to happen though to trigger a potential buy? It now has to clear and close above the 200 DMA, which if it does, offers a solid risk/reward setup provided the buyer sticks to the stop and understands risk/reward ratios.
The above is a brief bird’s eye view of how I apply technical analysis for buying dips-way different than merely catching a falling knife!
S&P 500 (SPY) The notable feature here is the hold of the trendline which one can draw from the lows of 6/27 runaway gap day
Dow (DIA) Almost touched and for now held the 50 DMA
Nasdaq (QQQ) Held the fast moving average with 96.30 pivotal
XLF (Financials) A move back over 22.98 would give this some juice
KRE (Regional Banks) Not ready yet
SMH (Semiconductors) Touched and held the 50 DMA
IBB (Biotechnology) Fairly close to the 50 DMA
IYR (Real Estate) 73.00 pivotal
ITB (US Home Construction) 22.58 the 2014 low
GLD Digestion day
Every day you'll be prepared to trade with:
