A massive reversal in the stock market Nasdaq index yesterday which I am sure caught a number of traders by surprise, including me.
But no worries the markets are roaring back this morning gaping up 90 min before the open.
Commodities roaring while the dollar is weak, TLT, also strong this morning.
Not much I can see on the negative side so far this morning. Financials, however, are mixed.
This to me is a neutral bias. I like to see TLT firmly in the red with Financials firmly in the green before I consider the premarket to have a strong positive bias. Neither is present so far this morning.
Now, this is far from a perfect indicator, but it’s not bad at giving a warning signal.
Yesterday breadth gave a very good advance notice of what was to come. And QQQ followed about 30 min after breadth started plunging. Rarely do you get such a strong divergence as yesterday? It allowed me to exit a number of day trades I had going on the long side well in advance of the plunge.
So I highly recommend you watch ADD and ADQD throughout the day. I use a 1 min chart on both.
No reason to take trades contrary to the way breadth is trending if your day trading.
Not much new overnight. Although, It is hard to see how much more and human mind could handle with the hysteria reaching a fever pitch from out lawmakers and the public.
Is there a breaking point? I imagine so, but I doubt we have reached it yet. It will take some significant event to trigger the borderline unbalanced on both sides. Unfortunately, there are plenty of events I see that could meet this criterion.
And also, unfortunately, all have a significant chance of causing havoc with the stock market.
I always get emails regarding how do you know what reality is these days. All sides are spinning full time now. So sorting through the spin and the facts can be daunting.
I came across an excellent quote in my morning reading:
“The threat from within only comes from the linguistic obscurantism we observe from the postmodernist rejection of observation of evidence and reason. ”
It’s not my quote, and the author of the quote has eluded me. If I find it I will give credit where credit is due.
But the postmodernist rejection of observation of evidence and reason is about as accurate a description of what is happening as I have read in some time.
Of course, it goes without saying, that it is my humble opinion rather than an absolute:)
Nothing anymore is absolute I have found out. Except as they say death and taxes. And As I have hit the magical 70 mark I am thinking perhaps death might not be absolute:)
Ok, off on a tangent. But the entire point of all this is if your a stock trader it is essential you divorce your personal political bias from your trading. It will cost you dearly if you do not.
I exited my last mean reversion trade in DUK with a small loss. That trade never got going. And the rebound allowed me to get out without much of a loss.
To trade mean reversion, you really need to know what to expect. Its almost a certainty you will be underwater for a period of time. It’s a rare trade that catches the exact turning point.
Also, its almost a certainty that you will take a few large losses.
So position sizing is imperative.
If anyone has any questions on mean reversion I can steer you in the right direction as it has been one of the most profitable of my trading techniques.
There is one bottom reversal trade in my basket. SLU is ripe for a reversal trade. However, it’s a bit early for the trade. We need some kind of divergence on the daily chart.So far there is a small on developing but a new low with a reversal would be perfect.
Then for an entry, I would use either the 240 min chart or if the divergence is large perhaps the 60 min chart.
I will be watching this one very closely. This is one I will share on my twitter feed when I take it.
Up up and away. I am getting dizzy watching this stock market go straight up.
It appears the power of deregulation and lower taxes for business is going to finish off the bears for a while.
I doubt there are many mean reversion short traders out there anymore. Most have either given up the ship or have run out of money.
This can also occur for bulls in a bear market. That is why a 50, 100 or 200 day MA is a good filter for these trades.
It will not eliminate risk completely but it will help, a lot!
The only risk now to the markets are Congress and the special counsel.
Congress remains dysfunctional and I doubt that will change anytime soon. Midterm elections are coming up this year and things will just get crazier. The people will have to wait for their representatives to put them to the top of the line.
Brinkmanship at the expense of their constituents.
Then we come to the special counsel. Nes was yesterday they wanted to talk with the president. Not about collusion, which has been forgotten, but potentially obstruction of justice in the way he treated Comey, Sessions and whoever else he has interacted with.
If the special counsel finds that Trump violated the law then this bull market is over. The 300+pt drop that we saw a month ago on fake news that Trump had improper communications, will be nothing compared to the free fall we will witness.
How do you protect yourself? I would watch for clues in the options markets. Unusual activity on the short side, buying puts of unusual size might be a tip-off.
There is not a doubt in my mind that there will be some people that know what is coming and will attempt to profit from it. Free money so to speak. If they get too greedy there will be clues in the options market.
In addition, considering Congress has exempted themselves from insider trading rules, our esteemed lawmakers will be at the top of the list getting ready for the plunge.
Perhaps I am just too cynical:) We will see.
This is going to be coming to a head soon. We have the Nunez memo, And FBI whistleblower also that has come forward to tell of secret meetings to plot against the president, another FBI whistleblower that is ready to blow the lid off of Uranium 1 and of course the IG report that rumor has it will expose the misdeeds of the DOJ and FBI pre Trump.
So I view it as the race is on with the stakes as high as they could be for the participants. The presidency is at risk while prison time is also at risk for some if true.
Now, I in no way wish to infer who is on the right side of all of this. None of us can know as the information is not something that is shared with the public. There will always be a hint of some of the facts. But without full knowledge, it’s a useless endeavor to speculate.
But as a trader it’s important to know what is on the horizon that might affect the markets.
Finally, the geopolitical front is heating up. I think we are seeing the beginning of a period when this will also be at the forefront of event risk.
The CIA has made it a point of telling all that N. Korea is only a few months away from having a missile capable of delivering a nuclear warhead to the U.S. Russia is again off our coast with subs. This time in N.Carolina. We have potential tariffs on China solar panels along with our military sailing close to disputed Islands in the China seas.
Then we have Iran and the Iran deal which will most likely be decertified in the next 6 months. And we have an EU that is for the most part, not a willing participant in supporting the U.S. as enthusiastically as they have in the past.
Last but not least we have Sytra heating up again, Turkey causing trouble and the issues between Israel and the Palestinians.
Quite a lot of its plate for the stock market. A minefield for the markets to make it through.
Before you go jump off a bridge, the markets are up again this morning. Another day another gap.
Of note, Financials, metals, strong. TLT and the dollar week. This looks like a positive premarket bias to me.
I am long one mean reversion trade in DUK. I will most likely exist today. The timing will depend on the breadth shortly after the open.
I have not been around for our 30 min twitter time lately. I have a lot going on right now the least of which is a multitude of positions to manage early in the trading day.
If you want to follow some of my trades along with my thoughts typically given after the open you can go to @rickjswings. Typically I talk about the overall day expected with the markets and also give some levels on the ES and NQ for failed breakout scalping.
It’s my private twitter feed for the stock market and its free. Sports Handicapping is the subscription-based part of this site. But considering the cost of joining it’s almost free:)
Good Luck Today
RickJ’s Handicapping Picks