In last Monday’s letter, I said that “the short-term bullish price action is encouraging for a continued move higher in the short term.
However, intermediate-term, the broader markets still has serious technical issues caused by the recent correction.
We don’t want to put a damper on any holiday good feelings but please keep in mind that the bull market that started in 2009 has been put into question based on the change in many intermediate- to long-term trends.
Intermediate term, a wide trading range is likely to be the bullish scenario.”
Did I imagine that short-term meant Monday? No, but I did point out last week that the “wrong way option traders” were placing excessive bullish bets on Friday.
While those bullish bets by the wrong way traders are rarely right, they nailed it that time. Monday’s large gap higher was the high of the week, so they didn’t cash in shortly after that those option premiums dissolved relatively quickly.
Tuesday’s gap lower wasn’t much of a concern since prices had gapped up into the prior resistance area. But when buyers failed to rally the market after trying to do so the whole morning, sellers took control just after 12 o’clock ET.
It was straight down from there and by the end of the day, the depth of retracement into the big rally day on November 28 was likely to be a major problem.
Thursday’s big gap lower and continued fall throughout the morning down to the bottom of the current trading range was too much and too short a period of time for buyers to pass up.
The S&P 500, measured by the ETF symbol SPY, had fallen just over 4 ½% from Monday’s high to Thursday’s intra-day low. The NASDAQ 100, measured by the ETF symbol QQQ, had fallen just over 5% from Monday’s high to its low.
From those respective lows, prices rallied back; not only did they surpass the morning high, they rallied back into and closed the opening gap!
After such an impressive turnaround, it was a reasonable expectation for at least some follow through higher.
The current market environment has been one of the least “reasonable” I can remember.
While Friday’s open was a bit choppy it did not suggest the rout that was about to unfold.
When the intra-day Buy Setup that formed at 11 o’clock ET (you can see it on your 15-minute chart) failed, I told those in the Green Trading Room to look for a Measured Move lower.
Buyers gave it another try at the end of that Measured Move but when that also failed, there was no place to go but Thursday’s low.
Some indices even went below that.
If you’re new to the markets, if it’s any comfort to you, this is not normal in any way. Not even for what would be defined as a whippy market.
For the market to rally 5 or 6% the prior week, gap up about 2% at the open of the new week — and then give it all back by the end of the week — truly meets the definition of what I’ve coined this market as Mr. Schizophrenic.
Where Are the Markets Headed This Week?
I wish I could tell you with some certainty but a picture of uncertainty is defined by a wide whippy trading range.
However, even within a wide whippy trading range, the last two weeks are extreme.
In last week’s section, I said a move under Wednesdays low and all long bets will be over in the short-term, and possibly for the year.
As it relates to the broader markets, I believe that is still the case from a short-term perspective.
That being said, with prices at the bottom of the current trading range and such an extreme move to the downside last week, a gap down on Monday morning could be met with buying.
Based on the way prices fell vertically to the downside last week, the upside is likely to be quite limited and not for swing traders.
Of course, that’s normal or logical thinking but Mr. Schizophrenic could have another crazy move in store for us.
Other than short-term traders, sidelines are likely to be the best place to be.
The Technical Set Up At This Time
As already mentioned, the majority of daily charts of the broader markets are in wide trading range and at the lower part of it.
Considering the weekly charts of the broader markets, last week’s big gap up, followed by the big move down that engulfed the prior week if not several weeks of trading, the only thing I can think of calling that is — no technical set up.
Regardless of the time frame being used, when the ranges in that time frame are excessively wide and overlapping each other like now, the message is always stand aside.
The current weekly and daily charts of the broader markets are displaying an extreme amount of uncertainty.
We will review this in more detail in the market review video.
Dow Jones Industrials
Above is the chart of the Dow Jones Industrial Average that we review each week.
With prices having failed to attack the Major Resistance (MR) after the large gap higher, and falling back down to Major Support (MS), it left a new lower Pivot High (PH) above.
The potential of getting back above that area in the short term (this year) would seem to be near zero.
That Major Support area was used on last Thursday when prices fell to it and rallied. Historically, once a reference point is used, that makes it less reliable.
So, while prices are in the area where they rallied from before over the last couple of months, there’s nothing to suggest that buyers can hold it at this time.
If prices break below 24,000, the next area of price support is at the prior lows for the year. That area is about another 1,000 points lower from Friday’s close.
While that’s a significant amount, only experienced and nimble traders should consider taking advantage of that scenario if it unfolds.
Mr. Schizophrenic has not been kind to those that hang around too long in one direction or the other over the last couple of months. Stay tuned!
VIDEO REVIEW OF MARKETS AND INTERNALS
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NEW STOCK TRADING IDEAS
Below is a daily/weekly chart of W. P. Carey Inc. (WPC).
Trade: Over $70.02, consider buying stock.
Technical Setup: Bullish +123 daily after +WRB Breakout all time frames to multi-month highs. REITs relative strength to broader markets.
Stop Loss 66.98 for now.
Below is a daily chart of Urban Outfitters, Inc. (URBN).
Trade: Under $36.40, consider shorting the stock.
Technical Setup: Sell Setup at d20/50-MA daily, bearish weekly.
Stop Loss: $39.55.
Below is a daily/weekly chart of Below is a daily chart of iShares Russell 2000 ETF (IWM).
Trade: Under $143.27, consider shorting the ETF.
Technical Setup: Breakdown bearish engulfing daily/weekly, relative weakness to other Index ETFs.
Stop Loss: $148.32.
Below is a daily chart of Tanger Factory Outlet Centers, Inc. (SKT).
Trade: Provided it opens over $24.00, consider buying stock over $24.44.
Technical Setup: Bullish +WRB Breakout daily and weekly, higher low monthly, and bullish REIT sector.
Stop Loss: $22.98.
Below is a daily chart of Southwest Airlines Co. (LUV).
Trade: Under $51.14, consider shorting stock.
Technical Setup: Breakdown after Breakout Failure at d50-MA, leaving major resistance overhead daily, bearish sell setup and engulfing bar at d20-MA weekly.
Stop Loss: $54.22.
Below is a daily chart of Altria Group, Inc. (MO).
Trade: Under $53.19, consider shorting stock.
Technical Setup: Bearish consolidation in bearish downtrend daily/weekly, relative weakness.
Stop Loss: $56.45.
ACB (cannabis stock) – Bullish gap island reversal, will watch.
Here are a few bullish patterns we will be watching:
NEW OPTION TRADING IDEAS
Below is a daily chart of Core Laboratories N.V. (CLB).
Trade: Under $74.89, consider shorting stock and selling Dec (12/21) $70 puts (12 DTE) at mid-point (puts closed at $1.07/share).
Technical Setup: Breakdown from wide multi-year trading range, bearish all time frames.
Option Strategy: Covered Put (CP). Note: This strategy is the opposite of a covered call, where the premium received improves cost basis.
Stop Loss: $80.02.
Below is a daily/weekly chart of Live Nation Entertainment, Inc. (LYV).
Trade: Over $56.62, consider shorting Dec (12/21) $55/50 bull put credit spread (12 DTE) for mid-point but limit of $.80/share (closed at $1.22/share).
Technical Setup: Bullish +123 continuation with the +WRB negating a bear gap breakdown to r50-MA and closing with a bullish engulfing Range Expansion bar on daily, bullish uptrend weekly, and relative strength to sector and broader markets.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $54.48.
Below is a daily/weekly chart of EPR Properties (EPR).
Trade: Over $71.47, consider shorting Dec (12/21) $70/65 bull put credit spread (12 DTE) for mid-point but limit of $.50/share (closed at $.65/share).
Technical Setup: Bullish +123 continuation with the +WRB negating a bear gap breakdown and closing with a bullish engulfing Range Expansion bar on daily, bullish weekly, and relative strength to sector and broader markets.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: $69.49.
This would be a good BCCS bearish pattern but it is too illiquid:
VIDEO ON OPEN TRADES AND ADJUSTMENTS BELOW
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Simple Share Sizing = $ Risk / Stop Loss
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Trading the Pristine Method — Origin and End
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