The markets are getting wild in their movements and historically wild, whippy price action is associated with turning points. Since the markets have been advancing for quite a while, the assumption is a top. It’s too early to say that it is; however, a push higher in the next week or so should align our market internals to give a short-term sell signal. We will review them in this letter.
I mentioned during the week that I believe that some of the buying was related to short-covering because of some of the price patterns that preceded the sharp move higher. Short-sellers have been run over at virtually every attempt, but you cannot blame them for trying. It will work — at some point.
That point will be when our market internals gauges give a bearish signal that is accompanied by a bearish pattern. That pattern could form in almost an endless number of ways, but it will be easily recognizable to the trained eye.
What so many do not put together is the combination of price patterns, market internals, and inter-market analysis. That is what I call techno-fundamentals and the three-legged stool of Master Trader Analysis.
Price patterns — either bullish or bearish — are a starting point for our investing or trading decisions. I’m sure all of you have seen and or have put on a trade based on a bias from the pattern at the moment and had it go against you almost immediately, which is often the result of not using multiple time frame analysis.
Multiple time frame alignment is a key concept for all trading, but the addition of market internals being aligned at the same time for a trading bias for individual stocks isn’t required. That being said, when the market turns, odds are most stocks do too in the same direction.
Shorting the broader markets from an intermediate-term point of view without the market internals aligned at the same time historically results in exactly what has been happening this year. The same is true with buying the broader markets after what seems to be an extended decline at the moment.
Those of you that are new subscribers to the service will see how accurate our internal market gauges are at signaling short- to intermediate-term turning points in the broader markets.
It is interesting that we do not have a sell signal yet, but that is what’s great about using these market internals. It certainly seems logical that the markets should pull back or already should have based on the ongoing advance. The non-confirmation of the internals has been spot-on and kept us out of harm’s way from shorting the market. I’ll review the video
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. For those that are new to the Master Trader Advisory Letter, the dates marked on the chart relate to the end of a week and what the chart looked like at the time of the commentary written in the weekend letter.
In last weekend’s letter, I said that the unfilled gap just below should stay that way and that the ideal bullish scenario is for prices to move above last week’s high and continue to move higher. It would be great if the markets always listened and followed the written script as they did, ha-ha.
We are seeing some Wide Range Bars (WRB) now, and that historically signals that a move is getting overheated and closer to a period of correction. However, with the breakout to new all-time highs in the Transportation Index and the Russell 2000 Index, any correction would be viewed as a buyable event.
The enormous Bottoming Tail (BT) bar from Friday is quite unusual, but then what hasn’t been as it relates to the gyrations connected to President Trump. With such a large range happening, especially after a WRB, some range contraction days are expected. That’s from a historical point of view of the typical price patterns that form.
The other scenario — and I always have two — is that prices take out Friday’s high and explode higher. That would certainly push the market internal gauges to a sell signal. As you will come to see when the sell signal comes, it will be accurate.
However, do not expect the market to turn on a dime the next day. Historically, it doesn’t happen that way. It could mark the high day, or it could be two weeks later that the market turns lower; however, when the signal comes, it will, and price patterns will be our gauge.
Now, before you start counting the Benjamin’s based on this a signal, that correction that we will look to profit from, of course, will not be the end to this bull market. That will come when we have a signal of an inverted yield curve in addition to the other market internal gauges. That isn’t close to happening yet but the curve has been narrowing, and I will monitor that and then update at the appropriate time.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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MasterTrader Technical Strategies course here – Use Code MTST32018 at Checkout
New Trade Ideas
Below is a weekly chart of MPLX LLP (MPLX).
Trade: Over $36.65, consider shorting Jan (1/19) $34/31 Bull Put Credit Spread (46 DTE) for current mid-point of $.35/share.
Technical Setup: +WRB Breakout daily, Major Support weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $33.98.
Below is a daily chart of Marathon Petroleum Corporation (MPC).
Trade: Over $63.06, consider shorting Jan (1/19) $60/55 Bull Put Credit Spread (46 DTE) for a limit of $.63/share (closed at $.67/share).
Technical Setup: Breakout daily and weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $60.28.
Below is a weekly chart of Denbury Resources Inc. (DNR).
Trade: Over $1.93, consider buying stock.
Technical Setup: Bullish consolidation daily and weekly after +WRB Breakout. Note: Earnings 2/21.
Stop Loss: $1.57.
Below is a weekly chart of Southwestern Energy Company (SWN).
Trade: Over $6.63, consider buying stock.
Technical Setup: Bullish consolidation daily and weekly after +WRB Breakout (this will be Core Trade to us because of huge Price Void on monthly). Note: Earnings 2/21.
Stop Loss: $5.88.
Below is a weekly chart of Tiffany & Co. (TIF).
Trade: Over $98.00, consider buying Jan (1/19) $85/105 bull call debit spread (46 DTE) for a limit of $12.18/share (closed at $11.80, which has at least $.50/share positive time decay).
Technical Setup: Bullish breakout all time frames.
Option Strategy: Bull Call Debit Spread (BCS).
Stop Loss: $90.38.
Below is a weekly chart of Ionis Pharmaceuticals, Inc. (IONS).
Trade: Over $57.63, consider shorting Dec (12/15) $52.5/49.5 Bull Put Credit Spread (11 DTE) for limit of $.30/share (close at $.35/share).
Technical Setup: Breakout daily and weekly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $52.36.
Below is a weekly chart of Gannett Co., Inc. (GCI).
Trade: Over $11.85, consider buying stock.
Technical Setup: Bullish consolidation daily following +WRB Breakout from multi-month base weekly.
Stop Loss: $10.88. Note: Earnings 2/8.
Below is a weekly chart of Stryker Corporation (SYK).
Trade: Over $156.89, consider buying Dec (12/15) $150/160 bull call debit spread (11 DTE) for a limit of $6.90/share (which is paying no time value).
Technical Setup: Bullish daily and weekly.
Option Strategy: Bull Call Debit Spread (BCS).
Stop Loss: $153.42.
Below is a weekly chart of WestRock Company (WRK).
Trade: Over $62.61, consider buying Jan (1/19) $57.5/65 bull call debit spread (46 DTE) for a limit of $4.60/share (which is paying no time value).
Technical Setup: Breakout weekly to all-time highs from bullish consolidation on r-20MA.
Option Strategy: Bull Call Debit Spread (BCS).
Stop Loss: $59.91 for now.
Below is a daily chart of Vertex Pharmaceuticals Incorporated (VRTX).
Trade: Under $139.85, consider shorting Dec (12/15) $150/155 bear call credit spread (11 DTE) for mid-point but limit of $.50/share (closed at $.60/share).
Technical Setup: Breakdown daily under d20/50-MA.
Option Strategy: Bear Call Credit Spread (BCS).
Stop Loss: $149.42.
We are watching ETSY Breakout:
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Greg Capra
Managing Director of Master Trader
Pristine’s Founder and Creator of the Pristine Method
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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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