So, last weekend I said the S&P was likely to drift lower towards and below its 50-dma and 200-dma Key Levels, and there was likely to be some friction around them.
It did precisely that before bouncing sharply off the 200-dma on Thursday and following through on Friday.
That’s good, and potentially reason for optimism, but right now I don’t see the high quality setups forming, so I would counsel a bit more patience.
I mentioned that theme of low quality setups two weeks ago, and the market has only traded lower ever since.
This time is not quite as clear, but if you want to take the best advantage of the markets, you need clarity with market timing as well as stock selection.
This is where being a lion – not a headless chicken – really pays dividends. Right now is prime lion time, which means observe. The market can reveal its hand very quickly – literally in just a couple of days – yielding high quality setups for stocks and options.
So, practice observing. The setups we can profit from include probable moves and probable “not moves”.
By “not moves” I mean stocks that might be overstretched or where significant support/resistance as well as other factors preclude a breach of certain levels.
In these select circumstances an options credit spread can deliver high probability income trades. But as ever, quality always trumps quantity.
Market Outlook:
The anticipated friction around the S&P’s Key Levels didn’t last long, but the story isn’t over just yet.
As it happened our Medium-Term Timer was spot on as it showed an oversold reading last weekend, and the anticipated slip below the 200-dma didn’t last long.
From here it is far from clear, but I’m going to go with the lack of great quality setups forming right now.
This means one of two likely short-term outcomes:
Either the market consolidates for a few days and starts to form better quality setups.
Or we start rattling around again near some big key levels (which I discuss in this video.)
In a bullish market we would be getting very excited about the shrinking retracements that we’re seeing in all the major indices … and they might just play out, with this most recent retracement bouncing off the key levels I mentioned in the video.
Thursday and Friday’s bounce was nice to see, but it wasn’t accompanied by huge volume conviction, and the consolidations we are seeing aren’t that attractive.
The Main Indices:
The SPY slipped lower as expected, but then bounced quicker than expected. While the QQQ was a whisker away from its 50-dma before bouncing sharply upwards. Likely to move sideways in a chaotic fashion for the next few days.
The IWM has been surprisingly robust, and demonstrated a very attractive bounce up from a sideways consolidation. I expect the recent lows to hold firm.
Market Timers:
Longer Term Market Timer (OVIsi): Still half-green and will continue this week.
Medium Term Swing Timer: Negative but rising and will likely poke into positive territory this week.
SPY OVI: Slow to respond to upside at the moment.
Friday’s follow through was somewhat unexpected. We need to observe the next couple of days.
Fast Filters Stock Selection:
As per the last couple of weeks, a relatively small number of nuggets, but things can change very quickly.
This week’s consolidations aren’t of the best quality, so be patient – like a lion!
Here is a smaller list of stocks that look interesting for our consideration. And please reference the video so you know what my sentiment is on each one:
AAPL ABBV AGL AMD BGS CEG CHD CVX DASH DSX EQT FLEX FLT FMC FUTU JNJ KBH LKQ LMT MOS MRK MTDR NFLX OKTA OMCL PANW SBUX SNOW TRIP VLO VZ XOM ZION ZM
