MARKET SUMMARY (10/28/19) – BACK TO THE HIGHS

Another week of sitting on our hands…and hopefully making money.

For weeks, I’ve been saying we should be on auto-pilot. And for weeks, that strategy has worked. I’ve been 100% fully invested long in my market directional bet and there hasn’t been any reason to change that. 

The market has grinded higher, and now weekly momentum indicators like the customized MACD that I follow have been dragged along and back in fully bullish territory. In fact, the MACD technically just got a buy signal this week, which could indicate a 4-6 week rally is just beginning.

There’s a lesson here. If you sit on Twitter all day, react to every headline on your news feed or overanalyze every piece of market or technical research you can find, you’ll inevitably find some data point telling you to take some sort of trading action.

More isn’t better when you’re trading though. Stick to a plan and you’re way better off. 

In our case, the plan was to go long when we broke out short-term, and stick to our stop levels.

Currently, a close below SPX 2,965 is my new trailing stop levelĀ (it’s been rising as the market has trended up). Until then, we stay bullish and ignore the short-term gyrations.


4 THINGS ON MY MIND

1. As bullish as I am over the next year, and even though the weekly charts say we’re just starting another weekly leg up starting, it’s never a bad time to consider scenarios where I might take short-term profits. I’m solidly profitable on my long positions, with some entry points exactly at the August and October bottoms.

Trading discipline may nudge me to start taking profits on this next leg up, as early as this week. I’ll be watching shorter-term time frames like daily and hourly charts for possible divergences and spots to scalp.

If your time frame is longer, it’s just noise, and you can feel free to ignore these trades. 

2. Sentiment will almost certainly get frothy if we break to new highs this week. Many traders will have to chase the market, with no resistance above, earnings behind us and year-end FOMO kicking in. Just as we try not to get too bearish on the way down, let’s be smart traders on the way up too.

3. Bitcoin’s wild weekend brings up a few thoughts.

One, this surprise rally was being set up for weeks. As recently as last week’s e-mail I wrote: 

“Bitcoin is building positive divergence on the daily chart. Sentiment is getting interesting because I’m definitely seeing a noticeable increase in people posting $6,000 and lower price targets and predictions of another collapse.”

Right on cue, Bitcoin blindsided the bears with a vertical move UP. Bitcoin trading is emotional and volatile, both on the way up and down. As most you know, I try to gauge sentiment as best I can, and I was sensing that sentiment was getting way too bearish. It didn’t take long for that gut feeling to play out…

4. That said, the weekend panic move brings up my second recurring thought on Bitcoin. It’s just way too manipulated and volatile for average traders. Too many moves happen during the lowest liquidity weekend and late nights. This weekend was a perfect example. 

Even as a long-term bull on Bitcoin, missing out on these panic rallies causes me no FOMO. I’ll always err on the side of patience and caution when trading Bitcoin. Remember, rallies likeĀ this weekend’s works the other way just as often.


A CHART THAT CAUGHT MY EYE

CBS – CBS Corp.

We live in a world where media is defined by Netflix, Disney+, Hulu, YouTube and every other streaming, online video service.

You know what no one talks about? Broadcast networks, TV stations and old school studios. And when they are discussed, it’s only in the context of being dead businesses on their last legs.

Well, as savvy traders and investors, that’s where we like to play, especially when the charts are setting us up for a nice trade.

Anyone who has followed me or taken my simple course recognizes this set-up. An ugly stock making lower lows…but with strong positive divergence and a set-up for a decent snap-back rally that could turn into more.

Strategy: Buy on a break above that downtrend line. Stop out on the most recent low. If CBS can rally, it could target resistance at the recent breakdown (which would be +12% from here) or all the way up to the 50-week moving average (+28%).

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