Momentum Monday – More Volatility

The charts on Momentum Monday are powered by MarketSmith

The large-cap indexes are still stuck in a range. 280 is an important area for SPY. It coincides with its 200-day moving average. If it is broken, the odds are that 260 will be tested.

Small caps are looking more vulnerable, struggling below their 50 and 200-day moving averages. If 145 is breached, IWM will likely test 140, which is only 4% away. Below 140, we are looking at testing the December lows. 

The odds are that SPY and QQQ will test their momentum lows from early August and when they do, we will be watching for potential divergences. If fewer stocks are testing their lows, there is a good reason to believe there will be at least a short-term bounce. If more stocks are testing their lows, we will see another leg lower in the indexes. 

I  have traded through multiple corrections of different caliber in the past 15 years and the same patterns always repeat. There is nothing to be afraid of. Corrections create amazing opportunities. While they last, they are great for intraday traders. When they end, they offer incredible entries for swing and position traders.

P.S. Check out some of my best trading books. They are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The 5 Secrets To Highly Profitable Swing Trading

Momentum Monday – Trading In A Range-bound Market

The charts on Momentum Monday are powered by MarketSmith

SPY is still locked in a range. 280 which coincides with its 200-day moving average seems like a short-term support. 290-295 is a short-term resistance. Last week, the index finished below its 10, 20, and 50-day moving averages again. Until it closes above 295, all long setups need to be held on a short leash – take partial profits often.

Keep in mind that the market indexes are lagging indicators. We are likely to see strong breakouts in individual stocks before SPY goes back above its 50-day moving average.

If 280 doesn’t hold, the next potential support is near 260.

Sentiment is what drives prices in a short-term perspective but it is always good to have a clue about the macro background. Interest rates around the world continue to be extremely low, even negative – mostly because central banks are highly accommodative. Many companies are still reporting strong earnings and are relatively optimistic about the future. A potential lack of a trade deal with China has probably been at least partially discounted because the it is a theme that has been in the headlines for almost a year. These are all major factors that should turn any 10-20% corrections into a buying opportunity.

P.S. Check out some of my best trading books. They are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The 5 Secrets To Highly Profitable Swing Trading

Momentum Monday – Rangebound Market, the Leaders Are Holding Up

The charts on Momentum Monday are powered by MarketSmith

What a volatile week! It started with a big gap down and a 4% drop in SPY and QQQ. Then, we saw a quick recovery and basically, the major U.S. equity indexes finished flat for the week. In the meantime, quite a few of the momentum leaders are already back to new all-time highs – some after reporting strong earnings; others – after quickly recovering from a dip to their 50 or 200-day moving averages. In other words, dip buyers are still dominating the tape.

Last week, we also saw a good number of earnings breakouts to new 52-week highs – mainly in highly shorted stocks with controversial fundamentals, which tend to attract short sellers. The shorts were obliterated: MTCH, SEDG, GH, CVNA, SHAK, ROKU,NTRA, MELI, WK,  etc. A price trend can continue longer than many short sellers can remain solvent. It is one skill to know when a company is potentially extremely overvalued or undervalued and it is a completely different skill to know when to enter and when to exit a position. 

Keep in mind that the U.S./China trading negotiations are still in a stalemate and the relationship between the two countries can go even more sour due to Hong Kong. There’s still plenty of scared money out there – U.S. Treasuries and gold closed near the highs for their weekly range and near 52-week highs. 

SPY and QQQ found some resistance near their declining 20-day EMAs on Friday, which was to be expected after the big bounce in the middle of the week. Actually, Friday was an inside day (its range was within the range of the previous day), which is bullish considering the recent run up. Closing above the 20-day EMA will put the foundations for testing the recent highs near 300. As we mentioned already, some individual stocks have already made new all-time highs and momentum names tend to lead the stock market. Given the current macro picture, I think the best case scenario for the S&P 500 is a range bound price action for the foreseeable future. If SPY loses 290 next week, it is likely to go to 280. SPY might be stuck between 300 and 280 for awhile.

P.S. Check out my last two trading books. Both are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.