Ivanhoff Capital

The charts on Momentum Monday are powered by MarketSmith

The number of distribution days in the major stock indexes is growing up. Last week, we saw the small-cap index testing the technically important level near 150 and surviving. SPY tested 280 again is it didn’t break. The more frequently one level is tested the weaker it becomes; therefore, a break becomes more likely.

If SPY loses 280, the odds are that it will quickly test its 200-day moving averages near 277 before it attempts a bounce.

While it is true that we continue to see relative strength in a decent number of software and biotech stocks, the current momentum is on the bearish side. We are seeing more negative reactions to earnings. There are more and more sectors breaking down and therefore, the market breadth is worsening.

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, hot to trade them, hot to make money with them.

The charts on Momentum Monday are powered by MarketSmith

The S&P 500 (SPY) is currently stuck in a range between 280 and 290. The fear of missing out is above 290. A break above 290 would very likely lead to a quick rally to 295-300. The panic is under 280. If the index loses 280, we will probably see a swift selloff to 270.

Trading in a range-bound market is not easy. It often requires playing the ranges which is counter-intuitive to many trend followers. Range-bound markets often come with a lot of choppiness, which means many false breakouts and breakdowns on the higher time frames.

Last week, we saw money flowing to sectors that are immune to the U.S. – China trade war. Enterprise software, restaurants, biotech showed notable relative strength. In a real market panic, none of those sectors will save you but as of now many money managers have chosen to hide there.

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, hot to trade them, hot to make money with them.

All charts in this post are powered by MarketSmith

The best risk-to-reward trading entries in a bull market occur right after a 3-5% pullback. We just had one.  The problem is that some 3-5% pullbacks turn into 10-20% corrections or into choppy sideways ranges, where only the most nimble active traders make money. This is what makes trading so challenging. The best returns usually exist when there are the most uncertainty and perceived risk.

How do we separate the pullbacks that are amazing buying opportunities from the pullbacks that could be the beginning of a lot more volatility and downside momentum? It is easier said than done.

I use the price action in momentum stocks and the market reaction to earnings. The results there are currently mixed. From one side, we saw some major breakdowns in TTD and UBNT. From another, many tech momentum stocks are showing notable relative strength by going sideways or breaking out: COUP, ROKU, TWLO, TEAM, etc.

It’s impressive how dip buyers managed to keep the S&P 500, the Nasdaq 100 and Russell 2000 above their 50-day moving averages despite the U.S. raising tariffs on China imports. Not selling off on bad news is typically how corrections end.

I lean on the bullish side but I fully understand that until SPY reclaims 290, the indexes and therefore many stocks are vulnerable; therefore, trading less and with a smaller position size continues to look like the most common-sense approach.

You understand the paradox, right. If we wait until SPY goes firmly above 290, we will miss some juicy opportunities. If we don’t, we risk getting chopped. The solution is to pick our spots and not to be constantly aggressive in the market. No one can capture all moves consistently.

Check out my last two trading books:

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

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