Wall Street viewed as good news the Friday, May employment report as evidence that the Fed will keep “the pedal to the metal” of accommodation and keep the bond-buying program going (minimizing the threat of a taper tantrum).
Interest rates (TBT) plunged and the broader markets finished the week on a positive note, up about .5% each.
As we have discussed, we are not in favor of this continued artificial monetary and fiscal support in light of the healed economy.
We have negative real yields with rising and high inflation.
Volatility remains low (no fear), even as many think the markets are “priced for perfection” with all the good news baked in.
Although cryptocurrencies continued their rough patch had a rough two-week fall, the “meme stocks” were back with their frenzied rallies. AMC took center stage last week, making new all-time highs.
Despite bearish market internals, many markets are bullish and look higher.
TREND MATRIX
The up, down, up, down, up price action has been going on for about eight weeks.
The tighter of that type of price action was in the S&P 500.
The NASDAQ 100 has been in a broader trading range the whole year but has tightened up recently.
In the Russell 2000, it’s been in the broadest and whippy trading range for most of the year. It also tightened up last week.
The Transportation index has formed lower Pivot Highs (PHs) and relatively equal lows.
We will watch to see if the Transports can lift off of those lows once again or instead break down below them.
Even if the Transports should break down below these lows, it’s not a basing pattern that we would be willing to short initially.
The reason is that prices have moved down from the upper part of the range to the lower part. Also, the rising 50-MA (an institutional favorite) is slightly below that consolidation that’s formed.
The Technology ETF has the best-looking chart for the potential of a move higher this week. XLK is an open position of ours.
The consolidation over the last week and a half in the prior Pivot High (PH) area is bullish price action. In addition, Thursday’s break under that consolidation and immediate recovery on Friday to close above at the top of the range is a pattern that historically moves higher.
The Master Trader Swing Trading Course explains this type of price action and many others in detail. Also, keeping a trading journal, trader psychology, money management and so much more.
TREND MATRIX PERCENTAGE CHANGES
Energy had the most decisive move up last week from what is considered an indecisive pattern that preceded it. It was mentioned last week that the pattern was better for prices to break out from, but it didn’t suggest such a decisive move.
Considering Friday’s price action in the S&P 500, the NASDAQ 100, and Technology, it suggests prices should go higher.
Friday’s bullish price action may have resulted from high open interest and options that expired on Friday.
We will see this week what follow-through there is to the upside or the lack thereof.
A breakout failure would signal the probability of a move lower since it would be a shock to longs.
Our market internal gauges gave a sell signal near the end of last week.
Sell signals have never been pinpoint accurate historically, but they’ve always provided good information to be respected.
It was an increase in put buying (bearish bets) on Friday, which occurred in a market moving higher.
It’s uncertain whether that bearish options activity is related to the options expiration, but we will get more information and greater insights this week.
Historically, an increase in bearish options activity on a rally day would be a good sign: meaning skepticism in the strength.
For the last couple of months, the erratic price action that’s been going on in the broader markets does not support an aggressive bullish or bearish bias.
VIDEO REVIEW OF MARKETS AND INTERNALS
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NEW ETF TRADE IDEAS
6/7: SPDR S&P Software & Services ETF (XSW) – Consider buying the ETF over $162.27. Continuation Breakout daily, bullish weekly. Stop $157.52.
6/7: Teucrium Corn Fund (CORN) – Consider buying the ETF over $21.47. Continuation Breakout daily, bullish weekly. Stop $20.21.
6/7: Utilities Select Sector SPDR Fund (XLU) – Consider buying the ETF over $65.76. Bullish +123 Continuation Breakout. Stop $64.31.
OPEN AND CLOSED ETF POSITIONS WITH TRADE UPDATES (NOTE: Also in Member’s Area in Open/Closed Trade Sheet)
6/7: Teucrium Corn Fund (CORN) – Consider buying the ETF over $21.47. Continuation Breakout daily, bullish weekly. Stop $20.21
6/1: ProShares S&P 500 Dividend Aristocrats ETF (NOBL) – Bought the ETF at $92.40. Breakout daily, Buy Setup weekly. Stop $89.85
5/11: Invesco QQQ Trust Series 1 (QQQ) – Shorted Jun (6/16) $300 puts for $4.00/share. 6/1: Closed half at $.41/share to book $3.59/share profit. Move Stop $326.88
4/6: SPAC and New Issue ETF (SPCX) – Bought the ETF at $28.78. 5/29: Move Stop $28.18
6/1: ProShares UltraShort 20+ Year Treasury (TBT) – Bought the ETF at $20.67. Bullish retest and reversal on Major Support. Stop $20.03
6/4: Technology Select Sector SPDR Fund (XLK) – Bought the ETF at $139.50. 6/6: Move Stop $136.53
5/7: Consumer Staples Select Sector SPDR Fund (XLP) – Bought the ETF at $70.67. 6/6: Move Stop $70.32
6/7: Utilities Select Sector SPDR Fund (XLU) – Consider buying the ETF over $65.76. Bullish +123 Continuation Breakout. Stop $64.31
5/20: SPDR S&P Pharmaceuticals ETF (XPH) – Bought the ETF at $50.10. 5/29: Move Stop $49.85
6/7: SPDR S&P Software & Services ETF (XSW) – Consider buying the ETF over $162.27. Continuation Breakout daily, bullish weekly. Stop $157.52
6/1: SPDR S&P Telecom ETF (XTL) – Bought the ETF at $100.21. Breakout daily/weekly. Stop $96.77
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All the best,
Greg Capra Managing Director of Master Trader
Dan Gibby Chief Options Strategist
NOTE: Master Trader will show opening and closing prices of all stock and options trades. We recommend that all traders and investors use proper share sizing for positions and money management. However, we cannot recommend what that is for your particular trading style, risk tolerance, or account balance. We urge you to calculate your own share/position size based on your individualized risk parameters, Trading Plan, and familiarity with the proposed trade strategy and risk. Advanced Management Strategies (AMS) covers in detail foundation and advanced position and money management.
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