There have been some wide up and down swings over the last three weeks and after that, the broader markets and most sectors are about where they were three weeks ago. The market internals that had reached being at a bearish extreme, which is bullish — combined with the breakdown bar failure that occurred — gave us a short-term bullish bias.
The bullish internals level has dissipated to being neutral now. And while that does not mean bearish, the floor that they historically provide when bullish has weakened.
With the weekly price support holding, and the daily moving averages pointing lower, next week’s direction looks like a coin flip at the moment.
On Friday, the initial gap higher on the positive bank earnings report gave way to profit-taking. The intraday price support did not hold, which led to further selling throughout the afternoon, but that did not change the daily day-to-day grind higher.
Most of the broader market indices ended the week between the declining 20-period moving average and the 50-period moving average and a red daily candle. While that could be used as a sell set up, the sloppy bottoming action and grind higher over the last three weeks does not make it an ideal one.
That being said, the bombing of Syria that occurred Friday night and what might come of it certainly makes that historical technical analysis assessment uncertain.
And Mr. Schizophrenic might actually see the uncertainty being over whether the bombs that dropped (and the extent thereof) as being a positive or not relative to what was perceived by the markets.
Hopefully, this situation will be resolved without further loss of life.
Provided no new news related to trade tariff wars and bombings, earnings announcements will become the focus.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week.
Volatility is beginning to contract with last week’s range less than 700 points.
To put that in perspective, prior to the February high, the average weekly range in 2017 was a little over 300 points.
The Dow’s sloppy grind higher stopped right at the declining 50-period moving average and unfilled gap.
Considering that the Dow and other broader market indices consolidated most of the day on Thursday, it seemed possible that they could go higher.
The technical reason for that view was the shakeout that occurred intraday on Thursday (not shown) and then the move higher into the close.
Price patterns that historically repeat over and over again is what we base our technical bias on, but as mentioned, this market has been plagued with doubt.
Based on the overall price action during the week and on Thursday’s close, I thought there would be further follow-through at least into the first reversal period on Friday.
In retrospect, considering that the broader markets fell steadily right after the first minute or so of trading, the looming threat of bombings and possible retaliation may have been the reason for the weakness.
Or maybe it was the banks that pulled everything lower. It’s hard to tell what Mr. Schizophrenic will do day-to-day.
The combination of uncertainty with those bullish market internals and whippy bottoming action lent itself well to the majority of our put credit spreads versus directional trades.
When the broader markets returned to an environment of certainty, a trend up or down will emerge and more directional strategies will return.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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NEW STOCK TRADING IDEAS
Below is a daily chart of WD-40 Company (WDFC).
Trade: Over $134.50, consider buying stock.
Technical Setup: Breakout with price void above daily/weekly.
Stop Loss: $130.64. Earnings 7/9.
NEW OPTION TRADING IDEAS
Below is a daily chart of D.R. Horton, Inc. (DHI).
Trade: Over $44.90, consider shorting Apr (4/20) $44/41 bull put credit spread (5 DTE) for mid-point but a limit of $.38/share (closed at $.45/share).
Technical Setup: Pullback into +WRB Breakout at 20/50-MA above Major Support and r200-MA.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $43.79.
Below is a weekly chart of Costco Wholesale Corporation (COST).
Trade: Over $190.04, consider shorting May (5/4) $182.5/175 bull put credit spread (19 DTE) for mid-point but a limit of $.75/share (closed at $.86/share).
Technical Setup: Breakout daily/weekly, Buy Setup and Bottoming Tails in bullish uptrend monthly.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $182.21.
Below is a daily chart of Sysco Corporation (SYY).
Trade: Over $61.01, consider shorting May (5/4) $60/57 bull put credit spread (19 DTE) for mid-point but a limit of $.45/share (closed at $.55/share).
Technical Setup: Bullish consolidation in top half of Bullish Wide Range Bar daily, bullish uptrend monthly.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $59.89.
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All the best,
Greg Capra
Managing Director of Master Trader
Trading the Pristine Method — Origin and End
Dan Gibby
Chief Options Strategist
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