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XLF

Interest rates don't matter for XLF, lolSo here we are, right back to the same price level as the last Fed rate announcement. Complete retrace of the tank for XLF, along with AMZN. In fact, retail XRT is actually higher than it was before the announcement, because apparently neither banks nor retail care about interest rates, lol. Look at HYG, corporate bonds are right back up there as well. If the market makes any sense, this will trade between here and $22 for a while then H&S down to $19 eventually. However, nothing seems very logical in this market (look at the price action on GOOGL), for all I know, they can jack the market right back up. My best guess is a down week next week with a possible double bottom the following week (see my SPY post). I doubt they can jack up the Dow by 800 pts again next week, so at least there's a chance that crappy stocks will go down. Let's just hope they don;t melt the market up like last January.
AMEX:XLF
by hungry_hippo
TRADE IDEA: XLF JUNE 21ST/FEB 15TH 21/24 UPWARD CALL DIAGONALMetrics: Max Loss/Buying Power Effect on Setup: 2.18/contract Max Profit on Setup: .82/contract Break Even: 23.18 vs. 22.81 spot Debit Paid to Spread Width Ratio: 72.7% Theta: .26 Delta: 37.46 Notes: Here, I'm just shopping around for particularly weak sectors in which to put on bullish assumption plays that will have plenty of time to work out and/or reduce cost basis in. Typically, I shoot for a break even at or below where the underlying is currently trading, but am settling for a <75% debit paid to spread width ratio with a less than ideal break even here than what I typically do. Consequently, I'm paying less at the door than I ordinarily would, but still have a shot at getting a 27.3% return on cap invested in the event price finishes below the short call.
AMEX:XLFLong
by NaughtyPines
$XLF Financials ETF - Oversold at Support$XLF Financials ETF - Looking oversold on the daily chart after closing red or flat for 8 straight trading days. Ending the day today right at a key support level just under $24. A bounce in the coming days definitely hinges on the FED not raising rates tomorrow . If they do nothing, I expect a near term price recovery in the XLF back to the $25-$26 range by year end. With a lot of people expecting the worst, call options are looking fairly cheap in my opinion. I'm looking at the Dec 31st $24.00 strike calls that closed today around 40 cents. With a break even (excl. commissions) of $24.40 and the ETF closing today at $23.91, you would only need a ~2.1% move up from today's close to reach break even and you have about two weeks to do so. Depending on your risk appetite, you could move to the higher delta ITM (in-the-money) calls if you prefer. If the FED does end up raising rates tomorrow, I think we could easily see $23 or worse by year end. Hedging with a straddle or strangle options play would probably be the smartest approach. But as in everything, higher the risk higher the reward. Note: Informational analysis, not investment advice.
AMEX:XLFLong
by Triple_Barrel_Capital
JPM - Bearish-neutral Iron CondorStock rally through till early 2018. Choppy price action with range-bound price through remainder of 2018 indicates large volume of shares exchanging hands (in other words, for a better mental picture, larger holders off-loading to more interested but smaller buyers). Expectation is neutral price discovery, with earnings report in January catalyzing subsequent direction move, which is typically bearish/downward with such price action. For now, price is attempting to find a fair value, and as such a bearish-neutral bias is bet on here. 85/90/115/120 JAN19 IRON CONDOR @ 0.67 CREDIT General plan: Roll if necessary & if possible mainly to reduce risk, expecially in this case due to earnings report date before expiration Target maximum profit, unless significant profit appears early. Comment or direct message for discussion, or on other interesting ideas! Follow for updates.
NYSE:JPMShort
by themdtrader
Arresting Developments At Another Oversold EdgeAT40 = 31.5% of stocks are trading above their respective 40-day moving averages (DMAs) AT200 = 25.5% of stocks are trading above their respective 200DMAs (just off a 32-month low) VIX = 21.2 (as high as 25.9) Short-term Trading Call: cautiously bullish Commentary I have become convinced that 2019 is going to deliver another one of those poor trading starts. The stock market is unstable. The stock market is chaotic. Headline risk is extremely high. Resistance levels are holding firm on the major indices. The gyrations in the stock market take me back to the temporary market bottom in the fall of 2008 as the financial crisis unfolded. {In 2008, the market roiled in October, plunged in November, calmed in December, and then setup the final of all final sell-offs into the epic March, 2009 low.} This time around, the S&P 500 (SPY) is stuck in a 2-month and counting trading range of wild gyrations starting with the massive October 10th breakdown from its 50-day moving average (DMA) to the 2600 level on an intraday basis. The index has yet to retest its low for 2018, but the rapidly sinking sentiment in the market makes it FEEL like the index has retested a multi-year low! {The S&P 500 (SPY) sliced through its October and November closing lows, but stopped short of October's intraday low. Buyers rallied the index from a 2.9% loss to a mere 0.2% loss.} The NASDAQ and the Invesco QQQ Trust (QQQ) staged comebacks that were sharp enough to close out the day with gains. These tech-laden indices were both down as much as 2.4% and ended the day UP 0.4% and 0.7% respectively. {The NASDAQ left its November low well intact on its way to an incredible snapback rally from a 2.4% intraday loss. The Invesco QQQ Trust (QQQ) left its November low well intact on its way to an incredible snapback rally from a 2.4% intraday loss.} All three of these major indices confirmed major resistance at their 50 and 200DMAs. The simultaneous failures followed almost exactly the scenarios I warned about in the last Above the 40 post in the immediate wake of the post-G20 euphoria. I executed my plan at the time and took profits on all my short-term long positions and initiated several big market fades, including Caterpillar (CAT) puts and CALL options on ProShares Ultra VIX Short-Term Futures (UVXY). There is no time to celebrate that market call because the market quickly transformed from the “Cramer bottom” right back to near oversold levels. The major lows occurred on the heels of a big drop in the futures which produced several trading halts and then news of the arrest of the CFO of China’s Huawei. The surprising news confirmed the need to end the euphoria over a 90-day “truce” in the China versus U.S. trade war. Trade tensions may even rise all over again. Recall that I claimed that the 90-day truce would merely give us 90 more days to gnash our teeth about on-going trade headlines. Still, I am taken aback that this scenario only took a day to get started! Despite the heavy weight of negativity, the intraday lows felt like a panic low and a major washout of sellers, especially with tech stocks in the cloud space and home builders rebounding so strongly that they posted decent gains at the close. That was a time to buy (and I did). This is still a time to buy, so I flipped my short-term trading call to cautiously bullish. The intraday lows provide a very clear line in the sand for stopping out of short-term bullish positions. Overhead resistance at the 50 and 200DMAs provide an upside target and a point to initiate new fades. My favorite technical indicator, AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, plunged “close enough” to oversold conditions (below 20%). At one point during the day, AT40 dropped as low as 23% or so (unfortunately a charting error in FreeStockCharts.com has for the past week shown distorted lows after the close of trading). AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, is still languishing in the 20% range as a reminder of the depressed positioning of so many individual stocks. The volatility index, the VIX, added to the buy signal when it soared as high as 26. The 25.4% surge came one trading day after a 26.2% gain. Combined, these moves represent a highly concentrated lift in fear. The VIX last closed above 26 during the February swoon. The volatility faders went to work from there and pushed the VIX to a mere 2.2% gain on the day. The VIX still closed at elevated levels (above 20), so opportunity remains to fade the VIX even from here. I chose to flip intraday the put options I bought on ProShares Ultra VIX Short-Term Futures (UVXY) because I loaded up enough on bullish trades like QQQ call options and calls on cloud stocks. {The volatility index, the VIX, is swinging through a wide 2-month range. below 30 and above the 15.35 pivot line.} While I am more constructive on the market, I am only cautiously bullish because the upside from here seems limited to overhead resistance. More importantly, there are enough signs remaining that the market could retest its intraday low in the near-term, perhaps even retest the 2018 low in short order (perhaps in January). Firstly, the Australian dollar (FXA) versus the Japanese yen (FXY) continues to show weakness and thus flag waning risk tolerance in financial markets. If AUD/JPY closes below its 50DMA, I will assume the currency pair is flashing a freshly bearish signal. {AUD/JPY sliced through 200DMA support and bounced back from a 50DMA breakdown. The important currency pair still looks weak with a downward bias.} Small caps are taking a harsh beating and are under-performing. The iShares Russell 2000 ETF (IWM) lost 0.3% for the day. IWM gapped down to open right at its 2018 closing low and traded as far down as a 15-month low before rebounding. I think IWM’s hold on its low is particularly tenuous because the index faded its entire post-G20 gain at one point on Monday. Its 4.3% loss the next day wiped out its entire rally from the November low in one fell swoop! {The iShares Russell 2000 ETF (IWM) looks like it is working on a major breakdown of its 2018 lows. A loss for the year is almost certain.} The financials also continue to look sick. I have been amazed at the muted alarms over this persistent weakness and under-performance. Financials were supposed to be big beneficiaries of the current environment. I have duly noted persistent narratives from pundits of lower regulations, lower taxes, a strong economy, low valuations, and strong balance sheets. Yet, the sellers keep fading and pushing the Financial Select Sector SPDR ETF (XLF) ever lower. Today, XLF closed with a 1.5% loss, underperformed the market yet again, and at one point traded at a 15-month low. {The Financial Select Sector SPDR ETF (XLF) formed a hammer patter as it snapped back from a 15-year low. Sellers still kept the ETF below its lower Bollinger Band (BB).} This latest cycle continues to fascinate me. The mild bullish divergence that I essentially dismissed before last week’s rally turned out to be meaningful. I noted that lesson and so am more inclined to treat this latest close call as a bullish sign. Next up on Friday is the November jobs report waiting to twist the minds of traders and investors alike. Another Fed meeting follows with a pronouncement on monetary policy on December 19th. If a late-breaking report from the Wall Street Journal is accurate, then the Fed appears already prepared to capitulate to market fears. The may soon back down from its plan to steadily and regularly hike interest rates. "Federal Reserve officials are considering whether to signal a new wait-and-see approach after a likely interest-rate increase at their meeting in December, which could slow down the pace of rate increases next year." The return of the Plunge Protection Team (PPT) already? CHART REVIEWS There are a LOT of charts that demonstrate the market’s drama and buying/shorting opportunities. I will wait until after Friday’s close to post a sample so I can be more conclusive. In the meantime, I DO want to post a quick note on a home builder. Lennar (LEN) continues to get a lot of focus on CNBC’s Fast Money. For some reason, the stock has become a favorite bottom-fishing stock on that show especially after a big block of call options were purchased earlier in the year. Once again, LEN was rolled out as an ideal value play where all the negatives are already priced in. I will address this notion soon in the context of the earnings of Toll Brothers (TOL) and the stock’s amazing post-earnings comeback. As I have done each time before, I have to issue an objection to this trading call. This time, I am turning my thumbs down even in the wake of a seasonally strong period and my plan to pick up selective home builder stocks to play this seasonally strong period. Unfortunately for LEN, the stock has yet to demonstrate convincing, renewed strength. The stock is not a buy until it can pull away from 50DMA resistance and what now looks like a double peak. Lennar (LEN) made a promising move to print a double bottom at its 2016 closing low, but the stock has yet to follow-through and confirm that low with a higher high and breakout. {CNBC's Fast Money @CNBCFastMoney After Lennar's 33% drop this year, @PeteNajarian says now is the time to buy the homebuilder at a discount. $LEN 39 2:49 PM - Dec 6, 2018 17 people are talking about this} — – — FOLLOW Dr. Duru’s commentary on financial markets via email, StockTwits, Twitter, and even Instagram! “Above the 40” uses the percentage of stocks trading above their respective 40-day moving averages (DMAs) to assess the technical health of the stock market and to identify extremes in market sentiment that are likely to reverse. Abbreviated as AT40, Above the 40 is an alternative label for “T2108” which was created by Worden. Learn more about T2108 on my T2108 Resource Page. AT200, or T2107, measures the percentage of stocks trading above their respective 200DMAs. Active AT40 (T2108) periods: Day #24 over 20%, Day #8 over 30% (overperiod), Day #2 under 40% (underperiod), Day #52 under 50%, Day #68 under 60%, Day #121 under 70%
SP:SPXLong
by drduru
Market resistances are clear on every time frameSPY closed at the low of the week with only the low of October 259.85 as support, and we are likely to test that level first thing next week. It's clear the MA20 on every timeframe is important for SPY, and both the tech and financial sectors and this has been rejecting every bounce attempt on every timeframe so far. Bears have the momentum on every timeframe; we're watching for changes of 4 hour trends and until then, the bulls are proving nothing to us
AMEX:XLF
by McGuireTO
1
Confidence and A Conditional Reprieve Amid Oversold LowsAT40 = 11.7% of stocks are trading above their respective 40-day moving averages (DMAs) (hit an intraday low of 9.4%, oversold day #3) AT200 = 32.3% of stocks are trading above their respective 200DMAs (intraday low of 30.0%) VIX = 21.3 (a decrease of 14.7%) Short-term Trading Call: bullish Commentary AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), fell as low as 9.4% on Friday. AT40 dropped as low as 8.6% intraday during the February swoon (February 9, 2018 to be exact). Since 1986, AT40 has closed below 9.4% only 92 trading days, and AT40 last closed below this level on January 21, 2016 at 8.3%. The day before that, AT40 closed at 7.4% and traded as low as 3.8%. AT40 obviously cannot trade much lower than these levels. AT200, the percentage of stocks trading above their respective 200DMAs, is very important now as an oversold gauge. AT200 closed the week at 32.3%. In January, 2016, AT200 managed to get as low as 9.0%, a level last seen around the historic March, 2009 bottom. In other words, while AT40 suggests the market is set up for a sustained bounce, AT200 reminds me that these oversold extremes can get yet more extreme if panic gets a fresh heaping of fuel. Trading action around important technical levels also remind me that the market could go lower. The S&P 500 (SPY) is essentially back to flat for the year but is still 7.2% above this year’s double bottom. A retest will be in play if the index fails to win what is perhaps the stock market’s most important battle: a test of 200DMA support. During the February swoon, the S&P 500 only ONCE closed below its 200DMA. The index closed below its 200DMA on Thursday and set up Friday’s drama. The index gapped up just above its 200DMA in an effort to clear out bearish sentiment. Sellers quickly closed the gap and then failed to take the index lower. Buyers fought off a test of the intraday low and managed to churn the index toward the day’s open for a 1.4% gain on the day. It was a messy way to demonstrate the importance of the 200DMA! If buyers can follow through early this coming week, the technical pattern will look like a (short-term) washout of the market’s most motivated and panicked sellers. I call this a conditional reprieve in the middle of oversold conditions because of the criticality of this 200DMA pivot. {The S&P 500 (SPY) closed right on top of its 200DMA support after sellers almost ruined an opening gap up.} The NASDAQ had a battle similar to the S&P 500’s; the main difference came with an intraday pullback that did not create a complete reversal of the gap up. The Invesco QQQ Trust (QQQ) did not fully reverse its gap above the 200DMA. Its 2.8% gain on the day has the look of a successful, and bullish, reversal of a 200DMA breakdown. {The NASDAQ gained 2.3% with a gap up and then close just below its 200DMA.} {The Invesco QQQ Trust (QQQ) made a convincing leap with the reversal of the opening gap up only touching 200DMA support. QQQ ended the day with a 2.8% gain.} While the big indices fared well at the end of the day, other indices did not. Their poor performance underlined Friday’s conditional reprieve. Some of these sectors need to wake up to help the stock market mount a credible and sustainable bounce out of oversold conditions. The faders managed to keep these indices plastered with bearish sentiment. The iShares Russell 2000 ETF (IWM) closed flat after sellers completely reversed the opening gap up. The Financial Select Sector SPDR ETF (XLF) suffered a similar fate. This disappointment was even more critical given the wake of bank earnings from the likes of JP Morgan Chase (JPM). The iShares US Home Construction ETF (ITB) held no pretense of recovery as its fade resulted in a 1.0% loss and fresh 17-month low. ITB has dropped 17 of the last 18 trading days in a sign of a near complete market retreat from home builders. {The iShares Russell 2000 ETF (IWM) ended the day flat as it clings to the starting point of the big May breakout.} {Bank earnings failed to save Financial Select Sector SPDR ETF (XLF). Sellers faded the opening gap up to a flat close on the day. At least buyers were able to bounce back from a fresh 2018 intraday low.} {The iShares US Home Construction ETF (ITB) continued its epic slide with an 18th straight down day. The 1.0% loss closed ITB at a 17-month low.} As suggested by the breadth indicators, the sell-off is causing broad damage. The Health Care Select Sector SPDR ETF (XLV) had a solid uptrend coming out of the February swoon. XLV even broke out to a new all-time high in late August. Last week, XLV broke down solidly below its 50DMA support and nearly reversed all its gains from the breakout. {The Health Care Select Sector SPDR ETF (XLV) gained 1.5% in a return to the lower Bollinger Band. A 50DMA breakdown is not confirmed.} The volatility index, the VIX, dropped 14.7% to 21.3. The intraday high failed to top Thursday’s intraday high: a small positive for volatility faders. Still, the VIX is still considered elevated given its perch above 20. {The volatility index, the VIX, remains elevated despite a 14.7% pullback.} The VIX typically serves as a gauge of fear on the high side and complacency on the low side. If we had an equivalent for government economic policies, say a “GIX”, the GIX might be at record lows. Confidence is of course half the battle of economic performance and confidence is tangibly oozing from D.C. (from one side anyway!). With consumer confidence at record levels, unemployment down to historic levels, and economic growth impressively strong, the rhetoric accompanying policymakers represents a euphoria perhaps only matched by the complacency of the “Great Moderation” when the Federal Reserve (mostly under Chair Alan Greenspan) was heralded for ushering in a time of lasting economic prosperity…just ahead of the Great Recession. If you knew nothing about economics, you might conclude this time around that the U.S. really has figured out how to repeal the laws of economic cycles. In particular, Larry Kudlow, the leader of President Trump’s National Economic Council, is beating a steady drum of unapologetic and triumphant confidence. In a CNBC interview, Kudlow issued a sound bite that *I* am confident will one day in the not-so-distant future sound cringeworthy to those of us who follow economics. Kudlow declared: “We are in a hot economic boom. There’s no end in sight.” Other key points from this interview… Not worried about the Fed killing the economy. It has staying power. {Me: This message is consistent with Treasury Secretary Mnuchin’s reassurances about monetary policy. Contrast these claims with President Trump’s worries over rate hikes.} Biggest blue collar employment boom since the 1980s. In 2018, U.S. entered an economic boom that no one thought was possible. Loves the skepticism. Proved the skeptics quite wrong. Don’t think that’s going to change. I fully understand why Kudlow is blowing the trumpets and beating the drums. For example, the display is an “eye-for-an-eye” response to the shrill skeptics who denounced the policies that helped kicked the economy into a higher gear. However, as an investor and particularly as a trader, I cannot help but think about the contrary implications of important government officials claiming that the economic good times will continue as far as the eye can see. Such claims defy experience and the laws of economic/business cycles. Such claims help form a foundation of hubris which can lead to policy errors. My unavoidable wariness feels even more poignant when in parallel I stare at charts showing a stock market violently and sharply falling off its all-time highs. I am not worried about over-optimism today or this quarter, but it is something that makes me stand up and take notice. (At the end of the chart review, I include a link to a Bloomberg Politics video for more context on Kudlow’s economic triumphalism). For now, I am keenly focused on my strategy for trading oversold market conditions. The stock market is on day #3 of oversold conditions. The average oversold period lasts about 5 days and the median is around 2 (50% below 2 and 50% above 2). At the current oversold depths, it could easily take another 2 or 3 days to climb out of trouble. The longer an overperiod lasts, the more bearish the implications. Similarly, the more frequently the market returns to oversold conditions, the more bearish the implications. The drama at the 200DMAs is extremely important context for these bearish implications. A stubbornly oversold market with an S&P 500 and NASDAQ below 200DMAs is a recipe for fading rallies. {Mean and Median Duration Below Given T2108 Threshold} The drama at the 200DMAs made me a little less aggressive. I sold my S&P 500 call options immediately after the open. I added to my Caterpillar (CAT) put options. I took profits in other bullish positions. I selected two small fades with a short on Roku (ROKU) which was up as much as 10% at one point, and I bought shares in Direxion Daily Russia Bear 3X ETF (RUSS). On the bullish side, I doubled down on put options on the ProShares Ultra VIX Short-Term Futures (UVXY) and opened a calendar call spread on Nvidia (NVDA). I become an aggressive buyer of SPY and QQQ call options on a combination of indices trading well below their lower Bollinger Bands (BB), volatility surging, and AT40/AT200 reaching toward historic oversold lows. Again, with earnings season coming up, I am leery of taking on a lot stock-specific risk as part of the oversold trading strategy.
SP:SPXLong
by drduru
Stock Market Cascades Down to Oversold TerritoryAT40 = 16.7% of stocks are trading above their respective 40-day moving averages (DMAs) (a drop of 14.2 percentage points to an 8-month low and the first day of an oversold period) AT200 = 38.6% of stocks are trading above their respective 200DMAs (a drop of 7.6 percentage points to a 6-month low) VIX = 23.0 (an increase of 44.0%) Short-term Trading Call: bullish (change from neutral) Commentary Sellers dominated the trading action in a way that we have not seen in a long time… The S&P 500 (SPY) dropped 3.3%, its largest single-day loss since early February. The NASDAQ dropped 4.1%, its largest single-day loss since June 24, 2016. The volatility index, the VIX, soared 43.9%, its 11th largest gain ever. The last time the VIX gained more in a single day was the record-setting 115.6% gain on February 5, 2018. Roll out the bull, the lower prices are here and fear has finally steamrolled complacency. In my last Above the 40 post that covered Friday’s trading action, I wrote: “So while the shorter-term indicator is at levels that have frequently marked bottoms in this bull market, the longer-term indicator is not yet creating the kind of breakdowns that overwhelm bulls with bargain signs.” The indicators are flashing bargains now. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), plunged sharply from 30.9% all the way to 16.7%. AT40 indicates the market is oversold (below 20%), and my favorite indicator has not been this low in 8 months. {AT40 (T2108) experienced its sharpest downdraft since the February swoon. At 16.7% AT40 went from "close to oversold" to definitively oversold!} AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, plunged alongside AT40. AT200 dropped from 46.2% to 38.6%, a level unseen for 6 months. Suddenly, investors are looking at a BROAD swath of stocks that have broken down below their long-term (up)trends. {AT200 (T2107) experienced its sharpest downdraft since April. At 38.6% AT200 definitively shows a market experiencing a broad-based breakdown.} These extremes immediately give me a bias for buying. I flipped the short-term trading call from neutral to bullish. I closed out almost all my bearish positions (hedges). I started my transition to bullishness by buying put options on ProShares Ultra VIX Short-Term Futures (UVXY). The VIX’s surge is an extreme that history says cannot be sustained for long. At 20, the VIX traditionally indicates an elevated level of fear. From this point and higher, sellers exhaust themselves relatively quickly. I like starting with a volatility fade because it can still pay off even after more substantial gains from the VIX. The inevitable collapse in volatility is typically sharp enough to cause substantial losses in the long volatility products. I chose expiration dates for the end of next week to give an initial first runway to this potential action. {The volatility index, the VIX, has returned to levels last seen in the waning days of the last big market sell-off.} The major indices are all over the place with a mix of bearish breakdowns and lingering hopes for critical support to hold. This downward cascade of selling and breakdowns means that the selling can continue for another day or two before a relief rally off the oversold extremes ensues. In particular, the S&P 500 has not yet quite tested 200DMA support. The index last touched this critical long-term support in May and only closed below its 200DMA ONCE during the sell-off earlier this year. Before that episode, the index last tested support during the election related swoon in November, 2016 and last closed below the 200DMA in June, 2016. In other words, traders and investors alike should be watching the coming showdown with the 200DMA very closely. I was amazed to see the important 2800 level give way so easily, especially with the S&P 500 already so far below its lower Bollinger Band (BB). The index is extremely extended to the downside here. Ditto for the tech-laden indices and small caps. {The S&P 500 (SPY) dropped 3.3% in a path that took it all the way from 50DMA support to within less than 1% of 200DMA support.} {The NASDAQ confirmed its 50DMA breakdown with a bearish 200DMA breakdown. The NASDAQ last traded below its 200DMA in July, 2016!} {The Invesco QQQ Trust (QQQ) lost 4.4% and closed right on top of its 200DMA in a move reminiscent of its picture-perfect close on top of 50DMA support 4 trading days ago.} {The iShares Russell 2000 ETF (IWM) confirmed its bearishly precipitous slide with a 2.9% loss and 200DMA breakdown.} {The Financial Select Sector SPDR ETF (XLF) lost 2.9% in a move that confirmed 50/200DMA resistance.} {The SPDR S&P Retail ETF (XRT) lost 2.5% with a 200DMA breakdown that confirmed the end of the rally in retail stocks.} A washout of sellers is a great way to resolve oversold conditions, but such a cataclysmic end seems so regularly elusive. A gap down at the open would generate the right amount of panic to force out even the most reluctant sellers. A gap down would put the major indices at an unsustainable extreme below lower Bollinger Bands except in the case of massive successive waves of selling characteristic of a bear market. However, instead of a gap down what often happens in these cases is that the follow-on selling in international markets somehow satisfies the selling urges in the U.S.; buyers eagerly jump into the market right before the open. On the flip side, a gap UP would leave a lot of motivated sellers awaiting higher prices to unload their burdens. In any case, the 200DMA breakdowns in the major indices provide good tells of the potential limits (resistance) of the first relief rally. Per the AT40 oversold trading strategy, I will get more aggressively bullish the lower AT40 goes. Additional extreme upward changes in volatility enhance that aggressiveness. With earnings season presenting a lot of stock-specific risk, I will mainly focus on the major indices for buys. The less aggressive strategy features waiting for the first sharp pullback in volatility while AT40 is oversold or to wait until AT40 ends its oversold period. Always note that an oversold market can get more oversold and the end of one oversold period can lead to a new one. In a bull market, supports hold and oversold periods are short-lived. The February swoon started with a 1-day oversold period followed by a 4-day oversold period. Three weeks later, AT40 dropped close to the 20% level before bouncing never to return until now. I enjoyed reading and listening to many of the narratives swirling around to explain the market’s sell-off. Few, if any, are useful because they all have to do with data and information we have known for quite some time, including the Fed’s slow and steady rate hikes. The main difference now is that the market suddenly cares about the negatives and the headwinds. Most importantly, the current sell-off reminds us that poor (and shrinking) breadth during a strong run-up is a sign of underlying weakness. I saw a number of pundits claim that breadth was fine and/or that a narrow market did not matter given strong economic fundamentals and corporate earnings. The truly new catalysts will come with the stories companies tell about earnings as the season kicks off in earnest in a day or two. I have already noted two companies that sent up important warning signs: Acuity Brands (AYI) and PPG Industries (PPG). Fluor (FLR) provided more bad economic news in the after hours session.
SP:SPXLong
by drduru
Not A Bear - Just A Bull Looking for Lower PricesAT40 = 31.0% of stocks are trading above their respective 40-day moving averages (DMAs) (was as low 28.1%) AT200 = 46.7% of stocks are trading above their respective 200DMAs VIX = 14.0 (was as high as 15.8) Short-term Trading Call: neutral Commentary So much for a small bounce before continuing a decline toward oversold conditions! The jobs report for September seemed to be a non-event as the S&P 500 (SPY) opened slightly higher and drifted higher for the first 15 minutes of trading or so. By the second breakdown to an intraday low, it was clear that sellers were eager to hit the exits. For the S&P 500, the selling ended just below its 50-day moving average (DMA). Buyers took over from there and pulled the index back from an ominous 50DMA breakdown. {The S&P 500 (SPY) briefly broke down below its uptrending 50DMA support before buyers rallied the index back to its intraday low from the previous trading day.} Like the S&P 500, small caps gave some faint hope of a bottom as buyers picked the iShares Russell 2000 ETF (IWM) off the very critical support of an uptrending 200DMA. {The iShares Russell 2000 ETF (IWM) closed at a 4-month low after buyers picked the small cap index off 200DMA support.} The parallel selling in the NASDAQ confirmed a 50DMA breakdown. The selling in Invesco QQQ Trust (QQQ) created the 50DMA breakdown that the tech-laden index barely avoided the previous trading day. {The NASDAQ closed near a 3-month low as sellers confirmed the previous day's 50DMA breakdown.} {The Invesco QQQ Trust (QQQ) reversed all its gains from late August with its 50DMA breakdown.} The selling even took down financials which had rallied going into Friday’s jobs report. The Financial Select Sector SPDR ETF (XLF) lost 0.4% after 50DMA resistance rejected it and sent XLF to a fresh 200DMA breakdown. {The Financial Select Sector SPDR ETF (XLF) turned back neatly from 50DMA resistance and again broke down below its 200DMA.} At the height of the selling, the volatility index, the VIX, soared to a 22.1% gain. This move was below the previous day’s 36.4% intraday high. The VIX closed with an even smaller gain of 4.2% as the volatility faders went into hyperdrive after buyers started defending critical technical levels on the indices. The VIX even closed below the 15.35 pivot in a demonstration of the continued stubbornness of bullish sentiment that keeps tilting toward complacency. {Faders pushed so hard on the volatility index, the VIX, that it swung from a 22% intraday gain to a 4% close below the 15.35 pivot.} Finally, AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, dropped into the 20s for the first time in 6 months. The buying off the lows only took AT40 back to 31.0%. AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, dropped to a 5-month low by closing at 46.7%. So while the shorter-term indicator is at levels that have frequently marked bottoms in this bull market, the longer-term indicator is not yet creating the kind of breakdowns that overwhelm bulls with bargain signs. This spot is particularly tough for making a short-term trading call. I left the short-term trading call at neutral only because the risk of new short positions is pretty high at this juncture. I closed out some shorts and put positions last week even and have nothing new on my list of shorts. This is a better time to prepare to buy. In other words, I am purposely avoiding getting bearish so that I can be ready to buy the market at lower prices. Recall that October is one of the riskiest months of the year in terms of potential drawdowns. Yet, with November and December offering two of the lowest risk months of the year, October can offer some timely buy-the-dip opportunities. {August, September, and October are the S&P 500's most dangerous months on an average basis. On a median basis, maximum drawdowns do not have such a dramatic spread of performance.} I am guessing that October is all the more dangerous this year given the exceptionally strong stock market performance in the third quarter (July to September). In other words, the market is “due” for more than a garden variety 1% or 2% drawdown on the S&P 500. I think technician Carter Worth made a good case for a retest of the 2800 level on the S&P 500. See below. The 2800 level was important as resistance in June and then important as support from July to August. By the time the S&P 500 gets back to 2800, uptrending 200DMA support should be there to meet the index with a kiss. More importantly, AT40 should also be at or near true oversold levels (20%). Even with this mental model, I am preparing for the possibility that last week’s selling was about as good as it well get. After all, sellers dramatically failed twice to keep the VIX elevated. If I see enough sign of buying power, small caps, IWM specifically, would be the obvious place to start under the assumption that 200DMA support is holding. A complete reversal of Friday’s losses would be a good first sign.
SP:SPX
by drduru