In the January 29 letter I wrote, “In markets like this one — where the bearish reversals have no or little follow-through — they lure you into believing that prices will always come back. And when it doesn’t work, that is when large losses occur that were never expected or calculated for. We do not as a want to see that happen to you; hence, these cautionary comments.”
We all know what happened after that and if you followed the bar by bar trail stop under a prior day’s low recommended, you were unharmed by the large drop that followed.
The size of the drop that followed was not anticipated, but we knew that risk is rising. In the February 5 letter, I wrote, “Why such a big drop in one day? Well, according to the jobs report that showed a pickup in wage growth, it seems people are making too much money. Hum…, the markets don’t like you to make too much money!?”
At times, markets are truly indecisive and even somewhat schizophrenic. A reinforcement of that was Friday’s rally higher. While Friday’s move higher was not as large as what started the move lower, both moves were ignited by the jobs report.
Again the jobs report was a positive one; however, on Friday, the markets embraced the fact that you might be making too much money!
The majority of the broader market indices and sectors are still trading within their respective high and low of the year. Last week’s price action was positive but it did not totally reversal the damage previously done. The NASDAQ 100 did make a new all-time high, which was powered by technology and Internet stocks.
Shorter analysis — there’s been an improvement but you can’t trust schizophrenic.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. The week before last ended with a Bottoming Tail (BT) and that did follow through higher last Monday. The middle of the week chopped sideways to lower with buyers stepping up on the dips. The positive jobs report was viewed as actually being positive this time and the Dow gained 440 points on the day and almost 800 points for the week. With all that movement, prices only traded between the prior week’s low and high.
The last four weeks have marked time trading sideways in the range of about 1600 points. For this week, we will still use the week before lasts high marked Major Resistance and that week’s low as second support (green line). First support is always a prior day’s low and resistance the prior day’s high in a daily timeframe.
From the perspective of the yearly chart (not shown), so far this year (it’s early) has been a consolidation of the well established but extended uptrend. From that long-term perspective, even a pullback toward the 21,000 area to 22,000 areas would be a normal, acceptable retracement.
That being said, Mr. Schizophrenia just might decide to make extended higher even more extended.
Master trader Tip: When a higher timeframe becomes extended, and a shorter time frame become erratic and whippy, it equals uncertainty.
From a long-term perspective, it means to hold. From a short-term perspective, it means to sit on your hands (SOH) and stand aside. As I said last week, the other choice is trading intraday.
I also said that I’m finding a fair amount of stocks that have been relatively unaffected by the markets. That continues to be the case and those stocks are primarily in the technology and Internet sector.
BROADER MARKETS
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TREND MATRIX AND INTERNALS
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NEW STOCK TRADE IDEAS
Below is a daily chart of Cubic Corp. (CUB).
Trade: Over $64.35, consider buying stock as core trade.
Technical Setup: Breakout all time frames.
Stop Loss: $60.49. Earnings 5/7. We will look at leg into covered call on stalled momentum.
Below is a daily chart of eBay Inc. (EBAY).
Trade: Over $44.30, consider buying stock.
Technical Setup: Breakout from bullish consolidation on r20-MA daily.
Stop Loss: $43.33. Earnings 4/18.
KRE – Provided it opens over $64.79, then over 5-Min. high consider buying stock. Breakout all time frames to all-time highs after Higher Low (HL) and +WRB. Stop $60.54 for now.
NEW OPTION TRADE IDEAS
SPR – Consider shorting $85/80 Bull Put Credit Spread for around closing mid-point of $.70/share (40 DTE). Bullish Engulfing +123 reversal on huge Double Bottom Major Support. Stop $85.98.
Below is a daily chart of Raytheon Company (RTN).
Trade: Over $215.35, consider shorting Apr (4/20) $210/190 bull put credit spread (40 DTE) for mid-point but limit of $2.55/share (closed at $2.86/share).
Technical Setup: Breakout from bullish consolidation on Minor Support daily, bullish weekly and monthly.
Option Strategy: Bull Put Credit Spread (BPS).
Stop Loss: $209.16.
GD – Provided it opens over $228.76, then over 5-Min. high, consider buying Apr (4/20) $210/240 Bull Call Debit Spread for $18.95/share (40 DTE). Gap Breakout all time frames to all-time highs after Higher Low (HL) and +WRB. Stop $221.37.
3/12: HLT – Consider shorting Apr (4/20) $77.5/70 Bull Put Credit Spread for $.75/share or better since extended (40 DTE). Breakout from consolidation and Bottoming Tails on Major support. Stop $77.07.
RF – Provided it opens over $20, then over 5-Min. high consider buying Apr (4/20) $18/21 Bull Call Debit Spread for mid-point (closed $1.92/share) (40 DTE). Breakout all time frames to all-time highs after Selloff to Minor Support (mS) and Bottoming Tails (BT), 100% Retracement, and Higher Low (HL). Max Gain is $1.08/share (56.2% Return on Capital). Note: earnings 4/16, so earnings trade. Stop $19.45.
FITB – Provided it opens over $34.02, then over 5-Min. high consider shorting Apr (4/20) $33/28 Bull Put Credit Spread for mid-point but a minimum of $.46/share (closed at $.50/share) (40 DTE). Breakout all time frames to all-time highs after Selloff to Major Support, 100% Retracement, and Higher Low (HL). Stop $32.10.
KRE – Provided it opens over $64.79, then over 5-Min. high consider buying Jun (6/15) $56 Calls for $9.70/share (96 DTE) for option traders (Deep ITM Delta of .85 for directional bias). Breakout all time frames to all-time highs after Higher Low (HL) and +WRB. Stop $60.54 for now.
Miscellaneous Member Documents and Reminders:
Adjustments and Comments on Open and Closed trades in Master Trader’s Market Edge Advisory Letter. Note: Our Trade Updates are timely posted in a separate Report in the Member’s Area. Please CLICK HERE to see that document for a current reflection on all Open and Closed Trades since the spreadsheet updates immediately and will always be more current than this e-mail update.
Please see Master Trader Guidelines for Trading the Open and Gaps in Member’s Area for rules on trade entry, gaps, etc.
Below is a link to individual videos explaining in greater detail the definitions of the main option trading strategies used by Master Trader in its advisory letters to generate wealth and income.
Description of Master Trader Directional and Income Option Trades can be seen HERE
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Pristine’s Founder and Creator of the Pristine Method
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