In last Monday’s letter I said, “This week, part of our focus will be whether Friday’s bearish wide range bar has the follow-through to the downside or have little to no follow-through and gets negated.
Historically, I wouldn’t bet on getting negated, but this market — as I mentioned before — has a personality that I’ve coined “Mr. Schizophrenic.” What happened?
Depending on where you look, that bearish wide range bar was negated, partially negated or not negated at all.
The S&P 500 negated that bearish wide range bar by retracing back to the top of it. That strength — and the fact that it is still in an uptrend in all time frames — suggest the possibility that we could see new all-time highs in that index soon.
The NASDAQ 100 and the Russell 2000 partially negated that wide range bar to different degrees. The Russell 2000 is the weaker of the two and most questionable as to whether it can overcome its recent highs.
The Internet sector ETF symbol FDN was among the weakest of sectors and was unable to turn positive on the week. This sector looks the most vulnerable to a further move lower if it cannot retrace much higher from here.
The strength in the Transports continued last week and, while Financials were up at their prior resistance, they held up quite well. If those two indices can hold in their respective resistance areas this week, they should be able to break out of these ranges and move toward the old highs.
On Friday, it was obvious that institutional money was flowing into the beaten down Consumer Staples (XLP) sector. That sector created a bottom in May and has been slowly grinding higher, but Friday buyers were in full control.
While that sector ETF is up against its price resistance area from earlier in the year, stocks in that sector like ADM, KR and KHC are breaking out of bottoms.
Overall, there were more positives than negatives last week, but the Internet sector weakness could be the fly in the ointment that could ruin the bullish price action in those sectors and indices that are showing relative strength.
While our end-of-day market internal gauges are neutral at this time, the sentiment gauge that we follow intraday gave us a heads up on Thursday; namely, that the morning gap down wasn’t likely to follow through lower.
At about 9:50 Thursday morning, I told those in the Green Room that the “wrong way option traders” were betting on the market collapse. That’s unlikely to happen when they are betting on the market’s direction in unison, and they surely didn’t disappoint again.
Dow Jones Industrial Average
Above is the chart of the Dow Jones Industrial Average that we review each week.
After a dip below Minor Support (mS) that touched the rising 20-period moving average on Thursday, buyers showed up as the wrong way option traders loaded up on bearish bets.
By the end of that day, a Bottoming Tail (BT) was in place and that did follow-through on Friday.
While the Dow did not close above the price resistance directly to the left, the current price pattern — within the existing uptrend — suggests a move above that recent resistance.
If prices do close above that area, last week’s bottoming tail bar will become our new reference point of Major Support.
Assuming prices clear that resistance, the next reference point level to keep an eye on is the 25,800 area.
The only Dow stock reporting earnings next week is Disney (DIS), which will be on Tuesday the 7th.
Money is rotating out of what has been the leadership into but has been under performers. That looks like it’s going to continue and assuming that it does, it supports the view that the S&P 500 could move to a new all-time high.
Stay tuned!
Market Overview Video
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NEW STOCK TRADING IDEAS
Below is a daily chart Citrix Systems, Inc. (CTXS).
Trade: Over $110.23, consider buying stock.
Technical Setup: Master Trader Buy Setup with Bottoming Tail on Gap Support following retracement from Pro Gap Breakout daily.
Stop Loss: $108.68.
Below is a daily chart Nutrien Ltd. (NTR).
Trade: Over $58.03, consider buying stock.
Technical Setup: Bullish +123 Continuation (bullish consolidation day in upper range of +WRB) following Pro Gap Breakout daily to new highs.
Stop Loss: $54.99.
Below is a daily/weekly chart of Ross Stores, Inc. (ROST).
Trade: Over $89.86, consider buying stock.
Technical Setup: Bullish +123 Continuation (bullish consolidation day in upper range of +WRB) Breakout from multi-week consolidation all time frames to new highs.
Stop Loss: $85.69 initially. Earnings 8/23.
Below is a daily chart NIKE, Inc. (NKE).
Trade: Over $79.07, consider buying stock.
Technical Setup: Breakout following failed breakdown and retest on the daily chart.
Stop Loss: $76.49.
Below is a daily chart Qorvo, Inc. (QRVO).
Trade: Over $84.91, consider buying stock.
Technical Setup: Bullish +123 Continuation (bullish consolidation day in upper range of +WRB) Breakout following Bearish Gap Breakdown failure on the daily chart.
Stop Loss: $78.99 to start.
NEW OPTION TRADING IDEAS
Below is a daily chart of Altria Group, Inc. (MO).
Trade: Provided it opens over $59.50, over 5-Min. high consider shorting Sep (9/21) $55 naked puts (46 DTE) for around closing price of $.48/share or better.
Technical Setup: Breakout from multi-month consolidation daily and weekly following failed breakdowns.
Option Strategy: Short Puts (SP).
Stop Loss: $55.77.
VIDEO ON OPEN TRADES AND ADJUSTMENTS
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