January 21, 2016 - 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
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X Long at $14
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ASNA Long at $14.20
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ETE Long $14.05
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P Long $13.38
Short Jan $14 Call - $.35
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In checking the futures pre open, it seems like a big win for the markets when you see the S & P futures only down 4.50 points.

This recent move has certainly been fast and furious.

To prove that point, this is what I wrote in the January 8th daily update ...

"You may recall from yesterday that I mentioned if the S & P 500 closes for two consecutive days under 1,968.80, the S & P should drop to 1,906 or possible 1,875."

That was only 9 trading days ago!

On the 8th, the S & P 500 closed at 1,922.03. And yesterday's low was 1,812.29.

So in 8 days, the S & P 500 dropped 109 points or 5.7%.

And this was after it had already dropped 160 points from the high on December 29th. When I see markets fall through support levels like a hot knife through butter, it does not bode well.

And that is what has happened in this move.

Now the question is when and where will this market find support?

One of things I look for to confirm a bottom is the capitulation day.
That is a day when the down to up volume exceeds 9 to 1.

Technically, there has only been one and that was last Wednesday, when the down to up volume was 9.41. Last Friday, there was a reading of 8.81. Close but not quite over the 9 to 1 level.

I would prefer to see a very high reading. The higher the better.

For example, on August 24, 2015, the down to up volume was 41.08.

That day also happened to make the low of the August sell off.

I bring this up because as I was on John's webinar yesterday, the down to up volume was about 35 to 1.

The SPY bottomed at 181.02 and rallied to a high of 187.49 in two hours. About a 6.50 move in two hours.

After the close, the talking heads on TV were claiming this as victory for the markets because of the extend of the reaction.

I don't know if this will end this correction, but it may set us up for a short term reaction.

And here is why.

The S & P 500 ended the day forming a hammer bar. The support level provided by a hammer should be around 1,836.

This also happened to be the lower band on the 60 minute minute chart, so if it is retested today and can hold above the lower band we may get a multi day move to the upside. Another thing I need to point is this. The 200 ema on the weekly chart for the S & P 500 is 1,812.35. And there is a major support
line at 1,812.50.

Yesterday's low happens to be 1,812.29.

If this level can hold, I would expect a move back up to the 1,938 area.

Here are the key levels for the markets.

VIX:

Major level - 37.50
Minor level - 32.81*
Major level - 31.25
Minor level - 29.68 *
Minor level - 26.56
Major level - 25.00
Minor level - 23.44
Minor level - 20.31
Major level - 18.85
Minor level - 17.19

The VIX hit a high of 32.09 yesterday, before pulling back and closing at 27.59.

If the VIX closes under 29.68 today, it should drop to 25.

I would expect a push up first to the upper band, which is around 30.

S & P 500 Cash Index:

Major level - 1,937.50
Minor level - 1,921.88
Minor level - 1,890.62
Major level - 1,875.00
Minor level - 1,859.38
Minor level - 1,828.12
Major level - 1,812.50
Minor level - 1,796.88
Minor level - 1,765.62
Major level - 1,750.00
Minor level - 1,734.38

I mentioned that 1,812.50 should be a strong area of support and that just happens to be yesterday's low.

Look for 1,828 to act as support.

Still trading under the lower band on the daily, which is 1,897.

Nasd 100 (QQQ):

Major level - 106.25
Minor level - 105.47
Minor level - 103.91
Major level - 103.13
Minor level - 102.35
Minor level - 100.78
Major level - 100.00
Minor level - 99.21
Minor level - 97.66
Major level - 96.88

The QQQ did manage to close back above 100, which is bullish.

A close today above 100.78 and it should head up to 103.

TLT:

Major level - 128.13
Minor level - 127.34
Minor level - 125.78 *
Major level - 125.00
Minor level - 124.22
Minor level - 122.66
Major level - 121.88
Minor level - 121.09

The TLT came within 21 cents of the 128.13 objective yesterday, before settling at 126.68.

A close today under 127.34 and it should drop back to 125.

GLD:

Major level - 109.38
Minor level - 107.03
Major level - 106.25
Minor level - 105.46 *
Minor level - 103.91
Major level - 103.13
Minor level - 102.34
Minor level - 100.78
Major level - 100.00

The GLD came within 9 cents of the 106.25 level yesterday.

The GLD would have to hit 109 for me to think that this long term downtrend is over.

XLE:

Major level - 59.38
Minor level - 58.60
Minor level - 57.03
Major level - 56.25
Minor level - 54.69
Minor level - 51.56
Major level - 50.00
Minor level - 43.75

Looks like it has become fashionable to try to predict where oil will bottom.

I can't tell you that, but I can tell you that the XLE is sitting right on a major support level, which is 50.

It is also sitting right on the lower band on the daily chart.

Two closes above 51.56 and it should retest 56.

Apple:

Major levels for Apple are 112.50, 106.25, 100, 93.75, and 87.50.

Still under the bottom band on the daily.

Very oversold. A buy on a close above 97.60 could produce a fast pop.

Watch list:
Bullish Stocks: AWK, O, AEP, BXLT, LEI

Bearish Stocks: ADS, BA, WHR GS, GD, FLT, UHS, CELG, CP, RL, FFIV, GRA, HAR, AGU, CXO, UNP, XOM, SWKS IBM and too many to mention

Be sure to check earnings release dates.