MARKET SUMMARY (3/30/20) – MIXED SIGNALS

Take a deeeep breath.

What a month. Seriously, let’s all step back and try to digest what a crazy month it’s been. The market has been historically insane. But the most insane part is that the market is practically calm compared to what the rest of the world and our lives are like.

Hopefully, most of you have as objective a view towards the market as I do right now. This is a time when the volume of noise, market predictions, bearish views, bullish views and everything is turned up 10x.

So let’s step back and keep things as simple as possible and stick to our process.

Daily charts are guiding my short-term trading. Longer-term (weekly and monthly) charts are giving me an overall bias to work around. With simple guideposts, I can make trades patiently and will take quick profits if needed. 

Interestingly, most of my trades after catching the first big wave down have been long trades. And most have been profitable, even in the face of an overall market decline. That makes sense since we’ve had daily charts and weekly charts both getting extended to the downside.

Today, we generally have more conflicting signals. 

On the weekly charts, we’re in week 5 of a bearish technical (MACD, DMI) configuration. Momentum is starting to flatten out a little. That means either gearing up for a weekly turn up, or at least sideways action. Which one is hard to predict, but at the very least I’ll keep in the back of my mind that it’s a riskier trade to keep betting on too much more extended downside. 

On the flip side, we have the daily charts just finishing up a strong 4-day move up. So the near-term momentum could start fading here, for a few days. And in this high volatile market, where the price swings are big, we could see some quick bursts of big declines. 

So there is no real obvious trade right now. At least no trade that I’d be comfortable sticking with for more than a day or so. This might be a time where I tie my hands behind my back and force myself not to trade. 

This is where mistakes are usually made. Focusing on not getting hurt is critical.

Patience. Controlling Fear of Missing Out. Disciplined trading. Small bets. This has been my mantra for the past month and I’ll keep reminding myself. 

I don’t think I’ll have to wait long though. The market will no doubt get everyone on one side soon, everyone looking at the same charts and everyone feeling bullish/bearish. That’s when I can take my shots again.


4 THINGS ON MY MIND

1. Just to give a little more detail on the near-term chart, you can see how neatly the SPX daily chart rallied right up to trendline resistance and then stalled. Even if it were to break above, there’s resistance higher at various levels. We’re also in the 4-6 day window of MACD strength that could trigger a pause in the rally. So rather than chasing long right here, I’d rather watch how it acts on any pullback.  

2. My line in the sand where the SPX would actually turn bullish again is if it can close above 2,797.  A week ago, a bullish trigger looked like it was a million miles away, but last week’s rally and the passage of time has made this a possibility. It feels like a lot of people are still viewing this rally as a bear market rally that will lead to an eventual re-test of the lows or new lows and a continued bear market. A close above 2,797 might make for a nice contrarian pain trade higher.

3. One constructive thing that happened with last week’s rally is that it turned a number of individual stock charts bullish based on my charts. Importantly, that doesn’t include many of the mega cap, crowded favorites that make up a big part of the indices. It does include a broad group of interesting stocks though. Individual stocks becoming buyable is an important early step in a bottoming process. At the very least, it makes constructing a hedged portfolio of longs and shorts easier. 

A few names I’m actively involved in on the long side include UPS, JD, GME, WORK, DBX, ZS, TLRY, CGC. 

4. Bitcoin ended its freefall and put together a decent enough week to start considering a return to a bullish scenario. I’ve held my long-term holdings (since I essentially don’t trade them at all), but will look to add trading positions if it can close above 7,030, breaking the resistance of the March high/December consolidation zone. Most likely, technicals will confirm that move if it happens. I’ve always said Bitcoin is usually something I prefer to buy on the way up instead of trying to anticipate reversals. That usually means never catching the exact bottom, but that’s fine with me.


A CHART THAT CAUGHT MY EYE

WORK – Slack Technologies

This is a tricky one. I hate highlighting charts that have essentially doubled in the last two weeks. And I hate targetting obvious fundamental stories – the work-from-home/collaboration theme feels too easy right now.  

I was actually debating highlighting UPS in this section instead. UPS looks a little more like the stocks I usually highlight – it’s much closer to its lows, not yet breaking out, but building positive divergence. Much more of a buy low stock.

But all things considered, WORK is a little more positive overall. Even with its recent move, it’s still well-off its highs and is one of the few charts that actually has a weekly MACD bullish formation. That’s very rare these days, so it should make it a little safer overall.

This is probably best to buy if we have a few down days, or if the MACD can pull back a few days and get closer to the zero line (without breaking down). If we get a pullback and price still holds support at $24-25, it would be a nice entry point.

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