Planning for the week ahead.
Over the past 3 months, the Dow, NASDAQ and S&P are exhibiting the exact same characteristics.
1. A narrow trading range for 6 weeks
2. A sudden down move
3. A narrow (4%) trading range the last few weeks.
(FYI - Blue candles are down days and white candles are up days)
Look even closer and you will spot that the big moves down are prefaced by a major, one-day down move. We just saw one on Thursday imho.
Drill down and look at the last week, and you will see a very important and revealing move. On July 15th, all markets hit the bottom of the range and on July 15th they shot up. What we see is a challenge to the bottom followed by a brief rally. You can see it earlier around May 6th and May 20th.
What is important to notice is that the brief rally fizzles: it doesn’t break through the top of the range. In fact, we see very big down days immediately after. Like we just saw Thursday last week.
Ok, so that’s the descriptive part. Here’s the prescriptive part.
We are going to re-explore the bottom of the range and if we go below the range, we will see a bear move down.
In other words:
1. The next few weeks will be a move down.
Dow = 11,000
NASDAQ = 2,200
S&P = 1,225
2. Either the markets will continue down further or we will bounce in this trading range for 3~6 weeks
How to play this
Regardless of whether we are stuck in a trading range or heading for a deeper, bear leg down, the best bet is to be negative the markets. I’m thinking QID, for starters.
Also, there is a remaining issue of whether we should be trading (holding only for a short time) or buying and holding. If we are heading down, then a buy and hold strategy makes more sense. What I’ll do is watch as we head to the bottom of the ranges. If we break through, then we hold. If we bounce, then it’s a trading situation: we look to sell some shorts and go a bit long.
Almost anything can trigger the down move, but my technical review suggests that the market is primed to go down.
This obviously concerns me regarding the Calls and ETFC.
I am thinking about writing some $4 ETFC covered calls. If it dips <$2.80, I’ll buy more.
The calls are mainly an energy play and I am hoping that they will behave differently. They look very oversold at a time when the market moved up. If they behave as a market hedge, then that is good. Especially if the market goes breaks down further.
1. A narrow trading range for 6 weeks
2. A sudden down move
3. A narrow (4%) trading range the last few weeks.
(FYI - Blue candles are down days and white candles are up days)
Look even closer and you will spot that the big moves down are prefaced by a major, one-day down move. We just saw one on Thursday imho.
Drill down and look at the last week, and you will see a very important and revealing move. On July 15th, all markets hit the bottom of the range and on July 15th they shot up. What we see is a challenge to the bottom followed by a brief rally. You can see it earlier around May 6th and May 20th.
What is important to notice is that the brief rally fizzles: it doesn’t break through the top of the range. In fact, we see very big down days immediately after. Like we just saw Thursday last week.
Ok, so that’s the descriptive part. Here’s the prescriptive part.
We are going to re-explore the bottom of the range and if we go below the range, we will see a bear move down.
In other words:
1. The next few weeks will be a move down.
Dow = 11,000
NASDAQ = 2,200
S&P = 1,225
2. Either the markets will continue down further or we will bounce in this trading range for 3~6 weeks
How to play this
Regardless of whether we are stuck in a trading range or heading for a deeper, bear leg down, the best bet is to be negative the markets. I’m thinking QID, for starters.
Also, there is a remaining issue of whether we should be trading (holding only for a short time) or buying and holding. If we are heading down, then a buy and hold strategy makes more sense. What I’ll do is watch as we head to the bottom of the ranges. If we break through, then we hold. If we bounce, then it’s a trading situation: we look to sell some shorts and go a bit long.
Almost anything can trigger the down move, but my technical review suggests that the market is primed to go down.
This obviously concerns me regarding the Calls and ETFC.
I am thinking about writing some $4 ETFC covered calls. If it dips <$2.80, I’ll buy more.
The calls are mainly an energy play and I am hoping that they will behave differently. They look very oversold at a time when the market moved up. If they behave as a market hedge, then that is good. Especially if the market goes breaks down further.
posted by Andrew at
11:37 AM
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