While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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We certainly got a strong reaction after the Fed announcement. Quite frankly, we have not seen a move like yesterday in a long time after a major marketwide announcement.
The S & P 500 opened with a slight bullish gap of 3.04 points. And it basically flatlines until the Fed announcement. This, of course, was no surprise and was expected. The market had spent the prior two days trading in narrow ranges waiting for the news.
After the announcement, the S & P sold off almost 60 points.
The high for the day was 3,017.40 and the low for the day was 2,958.08. The range was 59.32 points or almost 250% of the daily average true range.
The S & P did rally back to close almost 30 points above the low. It ended the day closing at 2,980.38.
This sell-off quite frankly, was not that shocking.
In fact, I mentioned in yesterday's webinar that I would not be surprised if the market sells off after the announcement.
One of the reasons is that this seemed to be one of those classic "buy the rumor and sell the news" situations.
The second reason, and more important reason in my view, was that the VIX was down to the long term support level of 12.50 and had started to move higher, a sure sign that the market should pull back.
But, I also said that a pullback would be a welcomed opportunity to get long.
At this point, patience to wait for an entry is the key. The market could and can drift lower.
As it turned out, the S & P closed at 38% of the range of its daily bar. It did not close at its low, but it still favors violating yesterday's low before the high.
The resistance level from yesterday's daily bar is in the 2,988 to 2,998 area.
Yesterday also closed out the July monthly bar. For the month, the S & P closed 38.62 points higher.
But this was not a particularly strong month. The range for the month was only 38.62 points as compared to the monthly average true range of 163 points. So, the range was less than 40% of the average.
And for the month, the S & P closed at 37% of the monthly bar. So, this does suggest that the odds favor the low being violated before the high.
The key levels to watch from the July monthly bar are the high of 3,027.98 and the low of 2,952.22.
The other key levels are the close of 2,980.38 and the midpoint which was 2,990.
The monthly price bar is also above the upper band, which is 2,917. This is certainly a price level to watch.
Pre open, the S & P is relatively flat.
Here are the Key Levels for the Markets:
$VIX:
Major level: 21.88
Minor level: 21.10
Minor level: 19.53
Major level: 18.75
Minor level: 17.97
Minor level: 16.41
Major level: 15.63
Minor level: 14.85
Minor level: 13.28 **
Major level: 12.50 <
Minor level: 11.72
The VIX closed at 15.73 yesterday. So, in one day, the VIX hit the next upside level of 15.63.
So, at this point, the VIX has done the expected. That is, it rallied off the major 12.50 level. Once again.
At this point, there is resistance at 17.19. So, if the VIX takes this price out, it should head higher.
The VIX could move up to 18.75 and it would not change the trend of the market. A move up to 21.88 would make me think that this pullback may be larger.
Watch the upside level of 16.41 and the downside level of 14.85 today.
SPX:
Minor level: 3,164.08
Major level: 3,125.00 <
Minor level: 3,085.95
Minor level: 3,007.85 ***
Major level: 2,968.80 <<
Minor level: 2,929.73 **
Minor level: 2,851.58
Major level: 2,812.50
Minor level: 2,773.45
Minor level: 2,695.35
Major level: 2,656.30
The key for the S & P is if it can hold the major 2,968.80 level. In review, the S & P took out 2,968.80 and confirmed a move up to 3,125 because it closed for two days above 3,007.85.
After taking out a major level, the market will often test the downside level, which in this case would be 2,929.73.
A drop to 2,929 would be an expected move. Anything more than that would make me concerned that the bull market could be in jeopardy.
QQQ:
Major level: 196.88
Minor level: 196.10
Minor level: 194.53 **
Major level: 193.75 <
Minor level: 192.19 **
Minor level: 189.06
Major level: 187.50
Minor level: 185.94
Minor level: 182.81
Major level: 181.25
Minor level: 179.69
The QQQ closed at 191.10. The QQQ will need to reclaim 192.19 or I would expect a drop to 187.50. I would expect support at 187.50.
And there is also strong support right at 190.63. so, watch this level because if it is violated, a move down to 187.50 would be expected.
IWM:
Major level: 162.50
Minor level: 160.94
Minor level: 157.81 **
Major level: 156.25 <
Minor level: 154.69
Minor level: 151.56
Major level: 150.00
Minor level: 148.44
Minor level: 145.31
Major level: 143.75
The IWM closed at 156.56. Or just above the 156.25 level. Watch to see if the IWM can hold this line. It should be support.
If it can't hold 156, I would expect a drop to 150.
TLT:
Major level: 134.38
Minor level: 133.60
Minor level: 132.03
Major level: 131.25
Minor level: 130.47 **
Minor level: 128.91
Major level: 128.13
Minor level: 127.74
Minor level: 126.95
Major level: 126.56
Minor level: 126.17
Minor level: 125.39
Major level: 125.00
The TLT closed at 132.89. A close today above 132.03 and the TLT should test 134.38.
The market certainly had a bigger reaction to the Fed than the TLT. But, we were biased to the upside because of the trend.
GLD:
Major level: 137.50
Minor level: 136.72
Minor level: 135.16 **
Major level: 134.48 <
Minor level: 133.60 **
Minor level: 132.03
Major level: 131.25
Minor level: 130.47
Minor level: 128.91
Major level: 128.13
Minor level: 127.74
Minor level: 126.95
The GLD closed at 133.21. A close today under 133.60 and the GLD should drop to 131.25.
Starting to drop off the upper band, which is now 136.47.
I am looking for a pullback down to 128 and possibly to 125.
Sell resistance is at this point.
XLE:
Major level: 65.63
Minor level: 64.85
Minor level: 63.28 **
Major level: 62.50 <
Minor level: 61.72
Minor level: 60.16
Major level: 59.38
Minor level: 58.60
Minor level: 57.03
Major level: 56.25
The XLE closed at 62.70. Still holding the 62.50 level. If this level holds, I still expect a move up to the 64 to 65 area.
Two closes above 63.28 should confirm a move higher.
AAPL:
Major level: 212.50 <
Minor level: 209.38
Minor level: 203.13 **
Major level: 200.00 <
Minor level: 196.88
Minor level: 190.63
Major level: 187.50
Minor level: 184.38
Minor level: 178.13
Major level: 175.00
Apple closed at 213.04 after reporting. It took out the 212.50 objective we had been looking for.
I mentioned yesterday that Apple was overbought in the short term and to wait for a close inside the upper band on the 10 minute chart.
Apple dropped about $5 after that setup.
At this point, 212.50 should be support.
WATCH LIST:
Bullish Stocks: CMG, SHOP, AVGO, MA, PANW, OLED, PANW, HD, LRCX, BABA, V, CMI, DE, CB, JPM
Bearish Stocks: ALGN, AMGN, IRBT, SFLY, XEC, CLR, NOAH, SFM, CADE
Be sure to check earnings release dates.
