Has The Probability of a Market Bottom Improved?

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China, Interest Rates and Oil, Oh My!

All we have as traders are our skills and discipline. Some have more skill and less discipline. Others have more discipline and less skill.

Regardless, what virtually none of us have (I say virtually to leave the door open) is a crystal ball to know a top is a top or a bottom is a bottom until either is firmly in place.

Therefore, I ended the week with both my skill and discipline intact, but with the unanswered question of whether or not the bottom in the market is in place.

There are clues of course. There is a sensible and logical risk point. The reward to that logical risk however, is unknown.

And that’s the rub. We all have to make our own choices about how we see the market play out from here. Furthermore, those decisions vary among the day and swing players.

Do we look at the Modern Family, phases, volume patterns, reversal candles, January 10-Day Calendar Range low (JCRL), oil, interest rates, China, NASDAQ, all of the above, none of the above?

Taking inventory, let’s examine phases on a daily and weekly basis.

Modern Family (IWM, XRT, KRE, IBB, SMH, IYT) Phases: Daily all Bearish. Weekly: Distribution except Biotechnology (IBB) Warning.

NASDAQ: Daily: Distribution Weekly: Warning

China FXI: Daily Bearish Weekly: Distribution

Oil: Daily and Weekly: Bearish

TLTs Daily: Bullish Weekly: Bullish

Reversal Candles: Only NASDAQ SMH confirmed a 2-day pattern reversal bottom. TLTs did so for a top.

Volume: All except Transportation (IYT) had well better than average weekly volume last week.

JCRL: All except Regional Banks (KRE) held their 10-day lows.

From that data, what is the probability of a bottom and what should I watch and trade?

NASDAQ is in the best phase, albeit still in negative phases. NASDAQ had a 2-day reversal pattern, large volume, and held the JCRL.

Realistically, second place is a tie among China, Interest Rates and Oil.

China, because it left a potential island bottom if confirms Monday. Good sign. Interest Rates, because although they are in a bullish phase, they confirmed a topping candle and under 124.50 break a fast moving average.

Oil because everyone is watching. Moreover, with the protracted bear phase and all criteria met that I spelled out above, it has lots of room for a major rally provided it holds 8.65.

I’ve chosen these instruments and the Modern Family purposely. Ideally, we want to see the Russell’s, more than most, hold 97.51. They have the potential to see 110 which makes the risk/reward ratio just under 2:1 for a swing.

Since the reward is the X factor we can only guess, your trading decisions will require both skill and discipline during this volatile and uncertain time.

Hitherto, if the market opens well on Monday, we will have a high probability that more rally is on the way.

S&P 500 (SPY) The low last week matches lows from August 2015 and October 2014. Each low was a spike, V-bottom type low. Each high on the run thereafter was lower. My guess is this rally can peter out if this nears 200. If.

Russell 2000 (IWM) I’m thinking I’d rather buy a dip closer to 100 and risk to the JCRL than chase if a swing trader. Why, could stop at 105-108

Dow (DIA) Underperformed the other indices on Friday. Needs to clear 162 and more importantly, hold 158.23

Nasdaq (QQQ) Again, risk reward important. Big wall of resistance at 109. Unless you think it can go up more

Volatility Index (VIX) A sell off but not a topping reversal candle

XLF (Financials) Cleared 21.13 the JRCL. But pretty far from the 10 DMA

KRE (Regional Banks) Inside day and under the JRCL-Prodigal off to a very rough start

SMH (Semiconductors) 47.60 started the party so logically it could retrace to there, but must hold. That’s a good risk point too.

IYT (Transportation) Has been in the bearish phase the longest. Did not have huge volume. Like to see this hold 117.67 and clear 121.60 early Monday

IBB (Biotechnology) Over 290 looks better. Since here is where spec money is, over 290 could see a good run to 320

XRT (Retail) Granny has 42 overhead to contend with. And an interesting earnings season with now weather hitting the east coast. 38.65 is all I would risk to

IYR (Real Estate) I should mention this is also still above the 200 week moving average

ITB (US Home Construction) Like IYR holding the 200 WMA

GLD (Gold Trust) Has to clear 106.09 to continue, then 106.24 the high this month. Hold 102.50

SLV (Silver) Has to decide what it wants to be when it grows up

GDX (Gold Miners) A move away from 13.00 would be a good start to the week

USO (US Oil Fund) 9.00 closest support to hold

XLE (Energy) Looks better

XOP (Oil and Gas Exploration) Liked this last week. Still do if holds 25.60

UNG (US NatGas Fund) Inside day. 7.65 is a good level to watch hold

TAN (Guggenheim Solar Energy) Volume is keeping me sidelined

UUP (Dollar Bull) Holding the 50 DMA with an inside day.

FXI (China Large Cap Fund) Like this a lot if confirms the island bottom

RSX (Russia) Also could have an island bottom if confirms