Huge Bounce Feels Like a Win for Bulls
Trading Ford, AMD, the railroads and more.
Technical Breakdown
NYSE Breadth: 61% downside volume
NASDAQ Breadth: 54.3% downside volume
We came into the day looking for some type of bounce and in the first hour, we didn’t have much momentum working on the long side. We talked about looking for a reclaim of Friday’s low but we didn’t get that either.
Essentially, we had to rely on one thing that many traders struggle with — Patience — because the bounce eventually came (more on that below).
Given the wide range yesterday, I opted to trade the SPY and QQQ rather than ES and the NQ. In hindsight, perhaps these two would have been better vehicles given the robust rally we got after the market gave us a puke-job in the first hour.
But managing risk is rule No. 1 and as we all know, the futures can be a painful place to be if you’re wrong and stubborn.
By the way, here’s the kind of intraday action I’m looking for.
That undercut of the low at $457.36 and reclaim of this mark was the trigger to get long. I obviously did not expect to fill the gap, but that’s what we have now.
Game Plan
We are set to gap up and I like to alleviate some more of my long into that strength and then see how we go from there.
I will write a separate piece for premium subscribers about managing risk shortly.
Yesterday we also talked about the importance of last week’s low in the S&P 500. For now, we’re back above it, but this week’s low looms large and if we revisit it, this level has to hold or we certainly risk more downside.
S&P 500
On the daily S&P futures chart, you can see that the market is already fading from its Globex high. To be honest that’s normal and healthy, given the strength we rallied with yesterday.
On the upside, 4700 is the key area. Not only is it psychologically relevant, but that’s also near where the 10-day and 21-day moving averages come into play. Above that and 4740 is on the table.
On the downside, keep an eye on last week’s low near 4671. A break of that level that’s not reclaimed would have me more cautious.
Nasdaq
The QQQ was making a beeline for the 200-day moving average before it bottomed near $370, reversed and closed back above support. Wow, that’s impressive.
To my eye, I want to see the QQQ hold the December low near $377.50. If it can do that, bulls can remain long.
A break of this mark puts it below support and puts this week’s low back in play.
On a further upside push, the $385 to $387 area is in play, along with the 10-day moving average. The action was impressive on Monday, but we’re far from out of the woods right now.
Individual Stocks — Ford, AMD, Go-To Watchlist and More
I’m going to keep the watchlist here, because some readers have expressed that the simplistic approach is their preferred method and that’s fine by me.
For what it’s worth, it can be hard doing just one daily update, given how wide the trading ranges can be (such as yesterday’s range). However, I try to be transparent in what I’m watching real-time on Twitter. Feel free to follow me there.
Ford
Ford is obviously getting a little tired. But I want to see how it handles a dip to the 10-day moving average after such a robust rally.
Failure to hold this short-term moving average could put the $21.50 level in play. On the upside, we’re looking for $25.
Go-To Watchlist:
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