In last Monday’s letter I said, “I’m not looking forward to getting back in the ring with Mr. Schizophrenia this week. However, a move above last week’s high will be viewed as bullish, and a move below the week before last’s low will be viewed as bearish.” What resulted was Mr. Schizophrenia being true to form.
Last Monday, the Dow Jones Industrial Average broke down below the prior week’s low on renewed concerns about trade disputes but closed with the minor bottoming tail. That price action caught my eye since I had seen similar in the past.
Although prices broke down below the prior week’s low, in Monday night’s update entitled “Could Today Set up a Turn?”, I pointed out the possibility of a Breakdown Bar Failure (BDF) forming.
The BDF began to setup by following up with the inside bar on Tuesday — and after Wednesday’s initial gap down caused by those trade war concerns, buyers stepped up in force.
It seems that market participants were shaking off the news as being more negotiation type of rhetoric. Or does the big money know that the internals are set up — as they have been historically — for a turn?
The anticipated BDF pattern was playing out with a twist because of the trade war news and the buying continued on Thursday.
Buying demand was able to close prices above the prior week’s high on Thursday. So earlier in the week we had a break below our support reference point but not a close below. And now we had a break above the resistance reference point and the close above it.
The next stop for the S&P 500 and Dow should be the 50-day MA just above.
Hold on their Master Trader, not so fast! Mr. Schizophrenic is afraid of the trade war news again.
Oh boy, back down we go! This is getting old, what now?
Let’s cover that in the video update.
DOW JONES INDUSTRIAL AVG.
Above is the chart of the Dow Jones Industrial Average that we review each week. After a 1300 point range from low to high, the Dow ended up close to where it started the week. So we’ve had another week of running in place.
While there has been little price movement decisively in one direction, last week’s price action has created what should be a significant reference point of support — that being the Breakdown Bar Failure low.
As mentioned in another commentary last week, I said that prices should stay in the upper half of the Wide Range Bar (+WRB) that formed on Wednesday. The Dow closed right about there on Friday.
I also said that while the details or extremes of the day-to-day ranges could move beyond that halfway point, the closes ideally would be in the upper 25 to 30% of that range. Clearly, that was not the case.
The possible turn that I talked about in the comments and video on Monday night happened, but Mr. Schizophrenia is certainly making it an “Alka-Seltzer Moment” every step of the way.
I have no doubt that big money is going to work here and wants to continue to buy, but are very nervous about what will be said next. This trade war “game of chicken” isn’t over and it’s anyone’s guess who’s going to be the first to blink.
If the two players were different, I might take a guess but I don’t think anyone wants to bet against either of these two. And that, in part, is what is making for such wild swings.
Master Trader Tip:
in last Monday’s commentary, I wrote about conflicted markets and what they have in common. Clearly, the markets are still conflicted but attempting to reach an inflection point.
From an experienced technical trader’s point of view, an inflection point is where multiple technical concepts come together to form a reversal pattern. These reversal points — whether a buy signal or a sell signal — are telling the truth at that moment. So if they fail, that failure is typically a violent one.
For those new to technical analysis, they seem to encounter many failed setups causing them to stop out. The reason being is that they do not know how to put multiple technical concepts together. Many refuse to learn until they have lost a significant amount of money.
For the experience technical trader, although significantly less often, the patterns (trade setups) fail at times too.
The difference between these two types of technical traders is that the novice is always second-guessing the reversal. They know that they don’t know what they are doing, but keep doing it anyway.
Whereas, the experienced trader accepts the fact that they will never be close to right 100% of the time. And that comes with being a professional investor and or trader in the markets.
However, this is accepted and their money management rules will always side-step disaster and take advantage of strong trends.
If you are interested in learning simple and Advanced Money Management (AMS), consider taking my class on that.
After taking it, you will be amazed at what is possible by just changing your money management approach.
As a subscriber to this service, enter coupon code MTSMONEY at checkout and the price will be discounted $400 dollars from $795 to $395.
You can always apply the cost of AMS to the full Master Trader Technical Strategies (MTS) seminar if you decide to take it.
BROADER MARKETS
[s3mv fileName=’April+Letters/BroaderMarkets_4_9_18.mp4′ fileType=’video’ source=’s3′ width=’800′ height=’450′ splashImage=” preLoad=’Y’ autoPlay=’N’ belowVideoHTML=” cuePoint=” redirectURL=” pauseAtCuePoint=’N’ isSecure=’Y’ bucketname=”]
TREND MATRIX AND INTERNALS
[s3mv fileName=’April+Letters/Trends_4_9_18.mp4′ fileType=’video’ source=’s3′ width=’800′ height=’450′ splashImage=” preLoad=’Y’ autoPlay=’N’ belowVideoHTML=” cuePoint=” redirectURL=” pauseAtCuePoint=’N’ isSecure=’Y’ bucketname=”]
NEW STOCK TRADING IDEAS
Below is a daily chart of The Home Depot, Inc. (HD).
Trade: Over $178.52, consider buying stock.
Technical Setup: Pull back into Bullish Wide Range Bar (+WRB) Breakout after Breakdown Failure at r200-MA daily.
Stop Loss: $173.74.
Below is a daily chart of Weight Watchers International, Inc. (WTW).
We will watch for possible short, will advise Monday.
NEW OPTION TRADING IDEAS
Below is a daily chart of Lennar Corporation (LEN).
Trade: Provided it does not trade below $60.36, then over 30-Min. high consider shorting Apr (4/20) $60/55 bull put credit spread (12 DTE) for a limit of $.76/share (closed at $.85/share).
Technical Setup: Pull back into Bullish Wide Range Bar (+WRB) Breakout on +Vol. after Breakdown Failure at r200-MA daily; sector bottoming.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: None for now.
Below is a daily chart of Floor & Decor Holdings, Inc. (FND).
Trade: Provided it does not trade below $54.14, then over 30-Min. high consider shorting Apr (4/20) $55/50 bull put credit spread (12 DTE) for a limit of $1.05/share (closed at $1.10/share).
Technical Setup: Bullish Wide Range Bar (+WRB) Breakout to new highs, bottoming sector.
Option Strategy: Bull Put Credit Spread (BPCS).
Stop Loss: None, we will take stock as core long if assigned.
Below is a daily chart of SPDR S&P Retail ETF (XRT).
Trade: WATCH ITEM ONLY possible shorting Apr (4/20) $43.5/41.5 bull put credit spread (12 DTE) for around closing midpoint of $.35/share).
Technical Setup: Pull back into Bullish Wide Range Bar (+WRB) Breakout after Breakdown Failure at r200-MA daily, bullish buy setup monthly.
Option Strategy: Bull Put Credit Spread (BPCS).
Thank you for being a loyal subscriber and feel to email us with any questions or comments on anything.
Access Trading Credit Spreads Course here, it’s the best $97 dollars spent to get up to speed fast.
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
Trading the Pristine Method — Origin and End
Dan Gibby
Chief Options Strategist
Follow Greg on Twitter, YouTube, and StockTwits to get real-time updates and education:
Twitter: @GregCapra
Stocktwits: Greg_Capra
youtube.com/c/mastertrader (please subscribe to receive all the timely stock market updates)
