October 7, 2020 - MDT Pro Tips

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.

I did suggest another covered call position yesterday. The idea was to buy BOX and sell the October monthly $18 call against the position. These calls expire a week from Friday.

The market was moving up yesterday from the open. It was trading almost 23 points above the open before the news came out that President Trump would hold off on anymore stimulus until after the election.

The S & P 500 topped out at 3,431.56 just before the announcement.

After the news hit the wire, the S & P proceeded to give back those gains and more.

The market dropped to a low of 3,354.54 after topping out. This was a range of 77.02 points. And it resulted in a close of 8% of the range for the day.

This was also an expansion with the range being 128% of the daily average true range. The average true range is 60 points.

The resistance from yesterday's daily price bar is in the 3,385 area. And just above this, there is resistance around 3,393.

There are a couple of points I do want to mention about yesterday.

The first is that we anticipated an expansion would be coming. We knew that because Monday was the sixth consecutive range contraction.

As you know, expansions will follow contractions.

The second point is the VIX and S & P divergence. A divergence between the VIX and the S & P happens when they both close in the same direction.

I mentioned last week how both the S & P and the VIX closed higher for two consecutive days.

And on Monday, the same thing happened.

This divergence usually predicts that a change in the market is forthcoming. But, it is not perfect in timing the reversal.

In fact, I wrote this yesterday ... "The only bearish scenario at the moment is that the S & P and the VIX have diverged once again. They both closed higher yesterday, which creates the divergence."

The sell-off yesterday based on these two facts is not all that shocking.

Pre open, the S & P is trading about 26 points higher.

This projects to an open around 3,387. This is right in the middle of the daily levels. So, watch to see if the levels can hold as support or become resistance.

Also, the monthly resistance level of 3,399, this level should now become resistance again. So, watch this level as well on a rally.

DPZ reports Thursday, before the open.

Be aware of the levels I have mentioned above.

Here are the Key Levels for the Markets:

$VIX:

Minor level: 32.03
Major level: 31.25
Minor level: 30.47
Minor level: 28.91 **
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

The VIX closed at 29.48. For the day, the VIX closed 1.52 points higher.

At this point, if the VIX can close above 28.91 today, it should head up to 31.25.

Also, the VIX continues to trade around the midband on the daily chart. The midband is 26.45. And yesterday's low dropped below the midband, but the VIX managed to close above it.

The midband is still support, until it is violated. And 29.50 is technical resistance.

S & P 500:

Major level: 3,593.60
Minor level: 3,554.55
Minor level: 3,476.45
Major level: 3,437.40 <
Minor level: 3,398.35 **
Minor level: 3,320.25
Major level: 3,281.20
Minor level: 3,242.15
Minor level: 3,164.00
Major level: 3,125.00
Minor level: 3,085.95
Minor level: 3,007.85
Major level: 2,968.80

The S & P closed at 3,360.97. The minor 3,320.25 level should be support.
And the market should open under the 3,398.35 level. So, watch this level on the upside.

Yesterday's high went to within 6 points of the 3,437.40 objective.

3,359.30 is also a minor support level.

The S & P did clear the midband on the 60 minute chart, which is 3,390. Watch this level today.

QQQ:

Minor level: 289.06
Major level: 287.50
Minor level: 285.94
Minor level: 282.81 **
Major level: 281.25 <
Minor level: 279.69
Minor level: 276.56
Major level: 275.00
Minor level: 273.44
Minor level: 270.31
Major level: 268.75
Minor level: 267.19
Minor level: 264.06
Major level: 262.50
Minor level: 260.94
Minor level: 257.81
Major level: 256.25

The QQQ closed at 275.16. The QQQ closed 5.00 lower. Watch for the QQQ to reclaim the 276.56 level.

Watch for support at 275 and at 273.44.

The QQQ dropped under the midband on the 60 minute chart. That price level is now 279 and should be resistance.

IWM:

Major level: 162.50
Minor level: 160.94
Minor level: 157.81 **
Major level: 156.25
Minor level: 154.70
Minor level: 151.56
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

The IWM closed at 156.62. The IWM closed .45 lower on the day.

The IWM took out the 156.25 level. With two closes above 157.81, the IWM should head up to 162.50. And 156.25 should be support.

The midband is now 146 and should now be support. And support should be at the 156 level as well.

And the midband on the 60 minute chart is 152.67, and IWM took it out. It should now be support.

TLT:

Major level: 171.88
Minor level: 171.10
Minor level: 169.53
Major level: 168.75
Minor level: 167.97
Minor level: 166.41
Major level: 165.63
Minor level: 164.85
Minor level: 163.28
Major level: 162.50 <
Minor level: 161.72 **
Minor level: 160.16
Major level: 159.38 < HIT

The TLT closed at 160.43. It closed .86 higher. The TLT did take out 159.38 but managed to close just above it.

The TLT is now oversold. The TLT managed to close above the lower band on the 60 mintue chart. That level is 160.

A retest should be expected after it closes back inside the lower band.

GLD:

Minor level: 188.28
Major level: 187.50
Minor level: 186.72
Minor level: 185.16
Major level: 184.38
Minor level: 183.60
Minor level: 182.03
Major level: 181.25
Minor level: 180.47
Minor level: 178.91
Major level: 175.00
Minor level: 174.25
Minor level: 172.70
Major level: 171.89

The GLD closed at 177.30. The GLD closed 2.11 lower on the day.

Watch to see if the GLD can hold the 175 level. A break of it and it should head lower.

Look for a retest of the lower band on the 60 mintue chart. That level is 173.

XLE:

Minor level: 41.41
Major level: 40.63
Minor level: 39.83
Minor level: 38.28
Major level: 37.50
Minor level: 36.72
Minor level: 35.15
Major level: 34.37
Minor level: 33.59
Minor level: 32.03
Major level: 31.25
Minor level: 30.47
Minor level: 28.90 **
Major level: 28.12

The XLE closed at 29.74. The XLE closed .45 lower.

The XLE needs to hold 28.90 to move higher. A break of it and I would expect it to drop.

Short term charts remain bearish. And the lower band on the 60 minute chart is 27. And the midband is 33.18, which should be resistance on a bounce.

AAPL:

Minor level: 140.63
Major level: 137.50
Minor level: 134.38
Minor level: 128.13
Major level: 125.00
Minor level: 121.88
Minor level: 115.63 **
Major level: 112.50 <
Minor level: 109.13
Minor level: 103.13
Major level: 100.00

Apple closed at 113.16. Apple managed to close $3.34 lower.

112.50 should be a support level. And the minor 115.63 should as well.

Apple needs to recoup 115.65 to move higher.

Apple broke under the midband on the 60 minute chart. That level is 117 and should be resistance. Apple has crossed into a downtrend on the 60 minute chart. Short term momentum is bearish. Watch the midband.

WATCH LIST:

Bullish Stocks: NVDA, ZM, DPZ, TSLA, RH, COST, BABA, FDX, CRM, AMGN, WDAY, DG, ROKU, LH, TEAM, SQ, LVGO, NKE, Z, PTON, DDOG, ZEN, CDAY

Bearish Stocks: LMT, NOC, LHC, DIX, GWRE, EXPE, CBOE, MRK, CM, CVX, PRGO, MTZ, LVS, EOG, MPC, UFS