Trading PlanTwo weeks ago, the broader markets rallied from their respective month-long congestion areas on news that the U.S. and China would resume trade talks.

That rally reached price resistance areas, and why said last week, “this is where the hefty lifting begins for bulls.”

I also said:

“The current combination of internals and prices being at resistance is not one that puts initiating new longs desirable.

This pattern, historically, requires some digestion (corrective price action) prior to moving higher.”

That is what we got with markets correcting either sideways or slightly lower.

The strongest markets saw buyers step up on the dip that occurred on Wednesday.

After that, it looked like we were there to see some new all-time highs. The S&P 500 made a peekaboo into that new all-time high area but backed off.

Friday started off with some choppy sideways consolidation, and it seemed like the day was going to be a real “yawner.”

However, when news came out that the Chinese were not going to visit U.S. farmers (more China trade news), the markets dropped.

Considering the attacks on the Saudi Arabia oil fields, the Fed announcement to cut interest rates by quarter-of-a-point, and China not going to visit U.S. farms, the price action in the broader markets last week was relatively uneventful.

 

S&P Sector ETFs

 

 

Without looking at the charts, you can see from the percent change list above that most of the action was last Friday.

The first column of percent change is the change for the day (Friday), and the second column is the change for the week.

As you can see, the losses on Friday were the majority of what occurred on the week. And the majority of the move lower occurred between 1:10 and 1:18 ET as the news about China not visiting the farms came out.

Utilities were the best performer followed by Real Estate, which was helped by interest rates falling again last week.

The chart of interest rates made a low two weeks ago and the pullback last week is in the area where buyers should want to purchase again.

The direction of interest rates this week may be a key factor in the direction of the broader markets. So, monitor the ETF symbol TBT to see if it reverses up or continues the decline.

 

Where the Markets Headed This Week

 

We don’t have any clear patterns across the broader markets, even looking at multiple time frames.

The broader markets' ability to get back up to the top of the range is a positive, but so far we do not have any signal that the markets are ready to continue higher.

I pointed out last week that the market internals of sentiment and breadth had moved to marginally bearish levels. Last week’s corrective price action has worked some of that off to neutral.

Next week’s economic news will be the typical reports with the majority of potential movers on Thursday. There are no economic reports coming.

The markets are “on their own” so to speak as to finding a direction or the lack thereof.

The drop that occurred on Friday afternoon that had little to no ability to retrace higher created a bearish candle in most markets and sectors.

While that single candle suggests prices can move lower, the majority of daily trends are consolidating within their up trends at respective resistance areas.

For the moment, it doesn’t support anything more than a neutral bias starting out this week.

 

Dow Jones Industrials

 

 

Above is the chart of the Dow Jones Industrial Average that we review each week for information and education of MTS.

In last Monday’s letter, we took note that the Dow had pushed up to its area of Major Resistance and that it never makes sense to buy after such a move without some type of corrective price action.

That corrective price action is underway and is not over yet.

The Dow declined slightly last week, and the majority of its relatively small loss occurred on Friday.

That decline did stay above the Bottoming Tail (BT) that formed on Wednesday. The BT tells us that buyers were willing to step up on the dip.

We will be watching to see if prices fall below Wednesday's low or hold that area.

If they can hold that area for the first half-hour of trading on Monday, it may get prices to turn higher — at least in the short-term.

A break down below Wednesday's BT would likely result in a move down toward the Correction Bar from the prior week, and possibly even the 26,600 area.

The Dow and the majority of sectors are in “no man’s land” from a technical perspective. They are consolidating the small gains that occurred in September and there is no confirming pattern as of yet to signal a continuation of those gains.

Historically, the end of September is not a bullish time in the markets, but in this news-driven market, anything is possible.

Until we get something decisive to suggest a move in either direction, we suggest trading smaller than normal size.

 

VIDEO REVIEW OF MARKETS AND INTERNALS

 

 

 

Advanced Management Strategies (AMS) covers in detail foundational and advanced position and money management.

 

NEW STOCK TRADING IDEAS

 

Below is a daily chart of Independence Realty Trust, Inc. (IRT).

 

 

Trade:  Over $14.57, consider buying stock.

Technical Setup:   Bullish 1-2-3 Continuation in strong uptrend above r20/50-MA daily, bullish weekly.

Stop Loss:  $14.08.

Optionable:  Yes, but illiquid.

 

Below is a daily chart of Edgewell Personal Care Company (EPC).

 

 

Trade:  Over $31.86, consider buying stock.

Technical Setup:   Bullish reversal at r20/50-MA and Minor Support daily.

Stop Loss:  $29.96.

Optionable:  Yes, but illiquid.

 

Below is a daily chart of The Kraft Heinz Company (KHC).

 

 

Trade:   Under $28.00, consider shorting stock.

Technical Setup:   Breakdown after -Gap and bearish consolidation daily, Sell Setup weekly at d20-MA.

Stop Loss: $28.72.

Optionable:  Yes, but illiquid.

 

9/23: LII – Consider shorting stock under $238.20.  Sell Setup and engulfing bar at d20-MA in downtrend daily, Bear 1-2-3 continuation weekly.  Stop $244.52

 

 

 

NEW OPTION TRADING IDEAS

 

None at this time but we are watching a bullish option trade again on Facebook (FB) over Friday's high, will advise.

 

VIDEO ON OPEN TRADES AND ADJUSTMENTS (NOTE:  Also in Member's Area in Open/Closed Trade Sheet)

 

 

 

Here's one of our open trades:

 

MT LIVE on the subject 9/25/19 at noon!

Options Strategies Definitions Videos Here

 

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Because your success is vital to you – and us.

 

Before selling options or credit spreads, we urge you to review the valuable and detailed information that we have provided for you in your Member’s Area.

If You’re in a Rush to Start

A quick simplified approach to calculating contract size is to simply base your contract size based on the number of shares permitted in your Trading Plan as if you were trading the stock or ETF.

Simple Share Sizing = $ Risk / Stop Loss

The amount of money that you are willing to risk – divided by – the stop loss amount. For example, $100 / .20 = 500 shares.

Credit Spread example, if your Trading Plan allowed you to trade 543 shares of AAPL based on the stop loss, then simply round down to the nearest hundred and short an equivalent number of contracts of the option.

Since 1 contract represents 100 shares of the underlying, this would be five (5) contracts.

 

Master Trader and You Building Your Financial Future Together!

Happy trading!  If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com

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 foundational and advanced position and money management.

 

NOTE:  Master Trader and its representatives may have existing positions in actual or other trade recommendations before or after suggested herein.  Additionally, we may manage them differently for internal purposes based on different risk parameters than noted herein.

All trade ideas and content are for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, option or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds.  Investment or trading information provided may not be appropriate for all investors, and is provided without respect to individual financial sophistication, financial situation, investing time horizon or risk tolerance. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request.  Master Trader Consulting, Inc. is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardize Options and the Risk Disclosure for Futures and Options found here:  CLICK HERE.