The broader markets ended the week close to where they started, which left a narrow body candle on the weekly charts. It’s just a stall within the existing uptrend and the pattern does not suggest anything more than that at this time.
The Transportation Index does have a topping tail with that narrow candle body and we will see if there’s any follow through to it.
Other than the morning news updates reported on CNBC that most of us watch, the station becomes little more than background noise during the day for me.
For that reason, if mentioned, I may have missed any mention of this week’s historic event. Maybe it wasn’t mentioned considering the strength of this bull market.
The historic event this week is the 30-year anniversary of the 1987 market crash.
October 19th is the official date of the 1987 crash. The top was in August and the retracement into September was deep enough to violate the daily uptrend. However, the weekly uptrend was still intact in September and actually was a low-quality buy set up. It was of low quality because prices were extended from support, but in bull markets, such setups do work.
By the second week of October, if you knew how to read the chart, you knew there was a reason to be out of the market or at least be hedged. The crash was on a Monday the 19th, but the move lower started the end of the prior week. On Friday (which was on the 16th), the daily chart had an ominous look.
We all know what happened.
Travel Back In Time to 1987
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Was there anything in the media this week to ask, “Will history repeat itself this week in October on the anniversary?” I didn’t hear it, but if you ask me — I would say, not a chance.
If the media was widely speaking about 1987 this week, I think I would’ve heard it. But it’s possible that I missed it. If they weren’t, does that mean that there’s complacency about this market? Maybe, but the technical price charts, market internals and the Inter-market analysis that I use to keep my own bias in check is not flashing any warning signs today — let alone the possibility of a crash.
How Did That Day In History Affect Me?
That historic day 30-years ago, as it relates to the stock market, meant absolutely nothing to me then.
I didn’t even know the market had crashed until a stockbroker friend of mine came by looking disheveled. When I asked him, “What happened to you?” He responded, “Don’t you know what happened!?” I didn’t, and I can remember asking him, “Is that a big deal?”
A little less than two years later, the stock market — and my self-education of it — became all-consuming.
With my AT&T 286 high-speed computer and 2400 baud telephone modem, I was downloading data all night. I could then type DOS commands to convert that data into my charting platform to start the analysis.
That was almost 30 years ago in the dark ages of being a technical analysis based investor and trader.
How time flies when you’re having fun.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. I changed the dates marked from what they were last week to show the Friday of the prior week rather than Monday. The purpose is to show what was being looked at the week before the Monday Advisory letter.
Last week, prices moved up about half of 1% and made another new all-time high. The bullish Wide Range Bar (+WRB) that was followed by an inside bar on 10/6, which formed after a multi-day move higher and would typically lead to a normal retracement or consolidation, didn’t; rather, prices continued higher through the week.
Friday ended with a move to new all-time highs but backed off leaving a tiny topping tail. The prior two days moved sideways so Friday’s new high was a micro breakout. While that is a very small part of this overall pattern, prices are extended on a short-term basis. With that being the case, even a micro breakout that fails by trading under the breakout bar’s low could start a decent retracement.
What I have labeled as intraday support being here is where you have three days of opens and closes together. If you look at your intraday chart, you will see a base at that point.
Master Trader Tip: A cluster of opens and closes within an uptrend will be a base in a smaller time frame.
That reference point would be where prices could begin to stabilize on an intraday basis if a pullback does begin.
An Intra-Day Trader’s Point of View
If that pullback occurs on Monday — and trades under last Thursday’s low, you will see the clear breakout failure on your 60-minute chart. For intraday traders, that would be a signal that would allow selling short intraday sell setups on a five-minute time frame.
Surprisingly, the market internals are not signaling a warning of a sizable pullback. Sentiment has actually moved up from being close to a bearish level (never hit it) to a more neutral one. So any normal pullback would still be considered buyable with the appropriate price pattern.
About buyable pullbacks within an uptrend, pullbacks to Minor Support (mS) are the ideal place for them to form. However, with this type of extended advance, prices should not pullback to mS because it would be too deep of a retracement. Pullbacks should be relatively shallow or sideways that creates a new point of price support.
Master Trader Tip: In a bullish uptrend, strong demand will create new support, rather than pullback to an existing reference point of price support.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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New Trade Ideas
Below is a daily chart of The Estée Lauder Companies Inc. (EL).
Trade: Over the earlier of $111.75 or 30-Min. high, consider buying Nov (11/17) $105/115 bull call spread (32 DTE) at mid-point (closed at $5.45/share). Note: Earnings 11/1 and we will close before.
Technical Setup: Breakout daily after bullish consolidation and Breakdown Failure. Note: See Master Trader’s Chart of Week 10/14/17 for a detailed description of the chart pattern and discussion on selecting the proper bullish option strategy.
Option Strategy: Bull Call Spread (BCS).
NOTE: The following two charts show the various Reward-Risk for two different Strike Spreads depending on your bias and Trading Plan. Feel free to trade the one more closely resembling your style. The lesson was made when EL was $111.24, so should be a little cheaper now.
Stop Loss: $109.47.
Below is a daily chart of FedEx Corporation (FDX).
Trade: Provided it does not open over $224, consider shorting Oct (10/27) $227.5/232.5 bear call spread (12 DTE) for closing mid-point of $.73/share or better since extended hourly.
Technical Setup: Bearish engulfing of Bullish Wide Range Bar, setting up lower high daily.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $226.52.
Below is a daily chart of EnerSys (ENS).
Trade: Under $67.85, consider shorting stock.
Technical Setup: Breakdown following retracement and bearish consolidation daily.
Stop Loss: $69.02.
Below is a daily chart of Hewlett Packard Enterprise Company (HPE).
Trade: Over $15.06, consider buying stock.
Technical Setup: Anticipated breakout following bullish consolidation and negating Friday’s bearish gap down on daily.
Stop Loss: $14.63.
Adjustments and Comments on Open Advisory Letter Trades Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades since the spreadsheet updates immediately and will always be more current than this e-mail update. Thank you.
NOTE: Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.
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Description of Master Trader Directional and Income Option Trades can be seen HERE
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All the best,
Greg Capra
Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
Dan Gibby
Chief Options Strategist
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NOTE: Master Trader will show opening and closing prices of all stock and option trades. We do not recommend proper share size for your particular trading style, risk tolerance, or account balance. We urge you to calculate your own share size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk.
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