December 28, 2018 – MDT Pro Tips A.M.

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to 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.

CURRENT POSITIONS:

GOGO Long at $19.93
Total Premium Collected $1.95
 
ASNA Long at $14.20
Total Premium Collected $0.75

DUST Long $4.50
Total Premium Collected $0.70

SNAP Long at $14.54
Total Premium Collected – $1.65

OI Long Feb $19 call @ $1.70

MDR Long @ $9.31

TEVA Long at $15.30
TEVA Short Jan 4th-$15.50 Call @ $0.45

CVX Long Jan 18th – $105 Call @ $1.10
CVX Short Jan 18th – $108 Call @ $0.25
…………………………………………………………………………….. 

Yesterday continued the dead cat bounce we have been anticipating.  For the day, the S & P 500 closed 21.12 points higher at 2,488.83.

The low for day was 2,397.94 which was a bit lower than I expected.  The lower end of the daily support level from Wednesday’s long range candle was 2,465.67.

As it turned out, the low came to about the 60% level of Wednesday’s price bar.

I bring this up because I had CNBC on yesterday.  I generally don’t like to listen to the talking heads, only when the markets are at extremes.

This is because I do like to hear them discuss sentiment. Especially at market extremes.  You can bet when the market is selling off, all the talking heads discuss how negative and bearish the markets are and they will go lower.

To me, that is generally a sign the bottom is coming.

We can plot the bearish sentiment on stockcharts.com using the symbol $BPSPX.  In fact, I have shown this chart many times.

Well, it just happened that Wednesday the Bullish Percent Index read a low of 11%.

Readings under 20% are generally considered overbought.  And quite frankly, I have seen a reading that low in quite sometime.  Even back in February of 2016, the Bullish Percent Index read 23.20%.

And that bottom turned out to be a major swing low.

But, the issue is trying to buy when the market hits an extreme like that.

That was the day I suggested two new positions.

But I digress.  Back to the talking heads.

As I listened to CNBC yesterday, all the talk was how the markets were giving back some gains from Wednseday.  I think at the time, the S & P 500 was trading about 40 points lower.

Against a 121 point range on Wednesday, a 40 point drop is insignificant.

In fact, is was still a buying opportunity even if it dropped under the daily support level.

But, another key level we were looking at was 2,407.  This was the midpont of weekly bar through Wednesday.

And yesterday’s low actually dropped under it by about 10 points before the major rally into the close.  That ended up being about a 100 point swing on the S & P 500.

Now that the S & P 500 made a new intraweek high, the new midpoint is 2,418.

And yesterday’s close was about 70 points above it.

A close above the weekly midpoint would be deemed bullish.

And a close above 2,504.84 which was last week’s midpoint would be even more bullish.

Finally, Wednesday’s close percentage was 100% and that suggested that the high would be violated before the low.  And this would have kept you thinking long, even as the market pulledback yesterday.

And as it turned out, yesterday’s close percentage was 100% as well.  So, you know the implications of this.

In closing, I do want to mention this.

Even with this 150 point push the past 3 days, the S & P 500 is still trading under its lower band on the daily chart.  The lower band is 2,495.63. And yesterday’s close was about 7 points below it.

So, the market continues to be oversold.  And the fact that the market managed to trade under the lower band suggests that the lower band will be retested after it does come inside.

Just as a comparison, the DOW, NASD Composite and the QQQ are all back inside their lower bands.

The only major market trading under the lower band besides the S & P 500 is the IWM.

Support from yesterday’s daily bar should be in the 2,465 area.  The next level under that is 2,444.

Continue to monitor the levels as I mentioned above.

Here are the Key Levels for the Markets:

$VIX: 
 
Major level: 43.75
Minor level: 40.63
Minor level: 34.38
Major level: 31.25 <
Minor level: 29.69
Minor level: 26.56
Major level: 25.00 
Minor level: 23.44 
Minor level: 20.31 
Major level: 18.75 

The VIX closed at 29.95, down 0.45 on the day. The VIX is still above its upper band on the daily chart which is 29.42.

This suggests that if the VIX can close back under the upper band, the markets should continue higher.

Watch to see if the VIX can move under the upper band.

32.42 is the upper band on the 60 minute chart.  If this acts as resistance, look for the VIX to head lower.

28.13 should continue to be support.  A break under 28.13 and expect the VIX to continue lower.  34.38 is resistance.

SPX: 

Major level: 2,578.10
Minor level: 2,558.58
Minor level: 2,519.53
Major level: 2,500.00 <
Minor level: 2,484.38 
Minor level: 2,453.13 **
Major level: 2,437.50  
Minor level: 2,421.88 
Minor level: 2,390.63
Major level: 2,375.00

As I said above, watch to see if the S & P 500 can reclaim the lower band.  The S & P 500 has had two closes above 2,453.13, so the objective should be to 2,500.

The 2,500 level should be critical for the S & P 500.  I do expect resistance at that level, so clearing it would be strategically important.

2,437.50 should be minor support.

QQQ:  

Major level: 168.75 
Minor level: 167.19 
Minor level: 164.06 
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 QQQ closed at 153.05.  With a close above 151.56, this now implies the QQQ should move up to 156.25.

At this point, I don’t see any rally going above the 162.50 level.  It if can, it would tell us that something is changing.  But a move up to 162.50 would suggest to buy the next pullback.

IWM:
 
Minor level: 145.31
Major level: 143.75 
Minor level: 142.19 
Minor level: 139.06
Major level: 137.50 
Minor level: 135.94 
Minor level: 132.81 **
Major level: 131.25 <
Minor level: 129.69 **
Minor level: 126.56
Major level: 125.00

The IWM closed at 132.48.  It closed up 0.55 on the day.  Even with this move, the IWM is still trading under the lower band on the daily chart.  That level is 134.08.

If the IWM can hold the 131.25 level, I would expect a move up to 135.

131.25 should be support as well as 129.69.

TLT:  

Major level: 123.44
Minor level: 123.05
Minor level: 122.27
Major level: 121.88 <
Minor level: 121.49 **
Minor level: 120.70
Major level: 120.31 <
Minor level: 119.92
Minor level: 119.14 
Major level: 118.75
Minor level: 118.36

The TLT closed at  120.05, up 2 cents on the day.  The TLT did hit the 120.31 objective.

To drop to 118.8775, the TLT will need two closes under 119.92.

The daily chart continues to move closer to an uptrend.

GLD:  

Major level: 121.88
Minor level: 121.10
Minor level: 119.53 **
Major level: 118.75 
Minor level: 117.97 
Minor level: 116.41 
Major level: 115.63 
Minor level: 114.85 
Minor level: 113.28 
Major level: 112.50 

The GLD closed at 120.57.  This was the first close above 119.53.  If the GLD can hold this level, I would expect a move up to 121.88.

The GLD is now sitting right on the midband on the daily chart.  That level is 120.01.

Watch to see if it holds.

XLE: 

Major level: 68.75 
Minor level: 67.97 
Minor level: 66.41 
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 57.49.  It was the sixth day trading under the lower band.  The lower band is now 58.49.

The XLE should test 59.38.

If the XLE can move up to 62.50 on this drive, it is possible the downtrend could be over.

FXY:

Major level: 85.94 <<
Minor level: 85.75
Minor level: 85.36 **
Major level: 85.16 
Minor level: 84.97 
Minor level: 84.58 
Major level: 84.38 
Minor level: 84.18 
Minor level: 83.79  
Major level: 83.59 

The FXY close at 86.  The low was exactly on the 85.94 line.

And 86.68 is the midband on the daily chart.  This should be resistance until it is violated.

A drop to 85.16 would be a normal pullback.

AAPL:

Minor level: 173.44
Minor level: 170.31 
Major level: 168.75 
Minor level: 167.19
Minor level: 164.06
Major level: 162.50 
Minor level: 159.38
Minor level: 153.13 **
Major level: 150.00 <
Minor level: 146.88
Minor level: 140.63
Major level: 137.50

Apple pulled back slightly.  It closed at 156.15, down 1.02 on the day. 

Nibbling long on Apple would be prudent.  I like an uneven straddle with a 2 for 1 call to put ratio.

If you have a question what that means, email me at davismdt@gmail.com. 

WATCH LIST:

Bullish Stocks: DOG, QID, LABD, PSQ, TZA

You know the market is in trouble when the trending stocks are all short ETFs.

Bearish Stocks: BKMG, GOOGL, BA, ROP, NFLX, NOC, LLL, MLM, STZ, GS, FDX, RTN, WEX, STMP, LGND, LRCX, FB, CB, LH

Be sure to check earnings release dates.