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.
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OI Long Feb $19 call @ $1.70
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WDC Long Feb 15th $40 Call @ $1.96
WDC Short Feb 15th $45 Call @ $0.60
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So, continue the follow through we had expected. And the S & P 500 hit our objective of 2,578.10 already. Yesterday's high took out that objective by 1.72 points.
Already, we have run three levels off the bottom.
And as I said yesterday, I do believe that how the market reacts at the 2,578.10 level should tell us what the market will do next.
If the market can close above 2,578.10 for two days, it is possible the S & P 500 could retest the old highs.
Having said that, we do know that a key pressure point on the upside will be the midband which now reads 2,742.22.
This is because when the price drops under the lower band, it will typically stall out at the midband once it starts to rally.
So, if the S & P 500 can clear this level, it would be rather significant.
But, I am getting a head of myself. It is worthy to note where potential pitfalls can be.
Back to this week's price action.
Based on Monday's close relationship of 60%, there was a slightly more than 50% chance that Monday's high would be violated before the low.
And that is what happened.
In fact, that objective was achieved at the open when the market gapped up to open at 2,568.11. This was 1.95 points higher than Monday's high of 2,566.16.
This is where the intra day action can be confusing.
First off, let me state that there are two types of gaps. The first gap is a gap above the prior day close. And the second gap is a gap above the prior day high.
Both of these bullish gaps tend to be bullish. Is one more bullish than the other?
I tend to think that a gap above the prior day high is a bit more bullish than a gap above the prior day close.
But here is where it can be confusing.
Let's say the close percentage skews the odds of violating the prior high before the prior day low. And there is a gap above the prior day high the next day.
(This is exactly what happened yesterday.)
When you think about it, the close percentage price expectation was met at the open. Now what?
The market did sell off from the open yesterday, but if you look at the short term trends they were bullish. And by definition, a gap above the prior day high is also bullish.
So, you would still be biased to trade the longside. The question is where do you enter the market?
This is where you can now look at the support levels from the prior day daily bar. And the midpoint of Monday's daily price bar was 2,545.36, so you would be looking around this level for support to come in.
The market continued to sell off until about 11:00 am EST when it stopped at 2,547.56. (11:00 also tends to be a key timeframe intraday.)
From that point, the market continued to rally all day until the close.
But here is something interesting.
Yesterday's open of 2,568.11 was 1.95 points higher than Monday's high. And as it turned out, yesterday's low of 2,547.56, was 2.20 points higher that Monday's midpoint of 2,545.36.
Coincidence?
I will let you decide. But, I find these balance points on the market a lot . You just need to know where to look.
In closing, I do want to mention this.
I think the best set up is when there is a bullish gap above the prior daily close, but not above the prior day high. And you have a close percentage that puts the bias to violate the prior day high BEFORE the prior day low.
This way you can buy at support with a price expectation that it will take out the prior day high.
Makes sense? I hope so. But, it's just logic.
Anyway, yesterday's daily bar had a close percentage of 83%. This puts the odds of violatiing yesterday's high at just over 80%.
And the support area from yesterday's daily bar is in the 2,563 to 2,571 area. It is fairly wide because of the gap yesterday.
In looking at the weekly chart, the key resistance level is 2,601. This is the high from the long range weekly bar from three weeks ago. If the S & P 500 can close above it, we would expect more movement to the upside.
Continue to monitor the levels as I mentioned above.
Here are the Key Levels for the Markets:
$VIX:
Major level: 28.13
Minor level: 27.35
Minor level: 25.78
Major level: 25.00
Minor level: 24.22
Minor level: 22.66
Major level: 21.88
Minor level: 21.10 **
Minor level: 19.53
Major level: 18.75
The VIX closed at 20.47 for the day. For the day, it closed down 93 cents. And yesterday was the first close under 21.10.
Today, we do have two key levels to watch. Longer term, a close under 21.88 would suggest a drop to 12.50.
For the short term, a close under 21.10 would imply a drop to 18.75.
Where the VIX closes today should help us determine if this rally will continue.
SPX:
Major level: 2,656.30
Minor level: 2,636.75
Minor level: 2,597.65 **
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
Target of 2,578.10 hit! Watch the minor 2,597.65 level on the upside. Two closes above this level and the S & P 500 should move up to 2,656.30.
Also, as I had mentioned, 2,578.10 is a key level. If the S & P 500 can close above this level for two days, it would suggest this rally will move higher.
Minor support is still at 2,539.10. And 2,558.60 is also 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 159.52. The objective for the QQQ should be up to 162.50.
If the QQQ can make a move up to 162.50, it could indicate this downtrend is over.
158.59 should offer support. And 160.94 is minor resistance.
IWM:
Major level: 150.00
Minor level: 148.44
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
The IWM closed at 141.73. 143.75 should be the target for the IWM.
The IWM will need to move up to the 143.75 level for me to consider this downtrend has ended.
137.50 should be strong support. And minor support is at 139.06.
TLT:
Major level: 125.00
Minor level: 124.61
Minor level: 123.83
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
The TLT closed at 121.43, down 0.32 on the day. This was the first close under 121.49. A close today under 121.49 and the TLT should drop to 120.31.
The TLT has now crossed into an uptrend on its daily chart.
120.31 should be a strong support level. How the TLT trades around this level should tell us how deep this pullback goes.
GLD:
Major level: 125.00
Minor level: 124.22
Minor level: 122.66 **
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
The GLD closed at 121.53. Watch to see if the GLD can clear the 121.88 level. If it can, I would expect it to head higher.
On the downside, the key level is 121.10.
119.53 should offer support. And 123.44 is minor resistance.
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 61.23. The XLE should test 62.50.
The next level on the upside is 62.50. It should offer resistance, so if the XLE can clear this level, I would expect it to head higher. This is key now.
58.38 is major support.
FXY:
Major level: 89.84
Minor level: 89.65
Minor level: 89.26
Major level: 89.06
Minor level: 88.87
Minor level: 88.48
Major level: 88.28 <<
Major level: 87.50 <
Major level: 86.72
Major level: 85.94
Minor level: 85.75
Minor level: 85.36
Major level: 85.16
Minor level: 84.97
The FXY close at 87.80. It was down .05 on the day. It will need two closes above 88.48 to move higher.
87.50 is a key level for the FXY. If the FXY cannot hold this level, I would expect it to continue to drop.
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 close down at 150.75. Watch to see if Apple can consolidate around the 150 level. If it can, I would suggest nibbling on the longside.
Minor support is at 145.31.
WATCH LIST:
Bullish Stocks: HLF, GCO, AHL, NLY, AGNC
Bearish Stocks: ADBE, MMM, ALGN, BIDU, ASML, BABA, LGND, UPS, TXN, GRUB, ALB, SWKS, AKAM, AABA, CERN
Be sure to check earnings release dates.
