Looking for a Bounce, But Gap-Up Makes It Tough
Looking for a Bounce, But Gap-Up Makes It Tough
Trading AAPL and earnings from BAC, UNH, more.
Technical Breakdown
NYSE Breadth: 83.2% Downside Volume (!)
NASDAQ Breadth: 71.5% Downside Volume
Not a good day for the bulls. That’s all I can say about that.
We have talked about energy and financial stocks being the recent leaders, but we’re losing the leadership from the latter as investment banks are seeing a sell-the-news reaction to earnings.
We’re also starting to see FAANG lose momentum. That said, the market can’t just be bearish every single day without some kind of reprieve. Eventually they’ll rip it higher, even if it’s only a dead-cat bounce.
Game Plan
“I want to preach patience — especially on a dicey Tuesday morning — and let the market show its hand before piling in and forcing a bunch of trades early this week.”
That was our Game Plan from yesterday and I think it worked out pretty well yesterday. We came in really watching just two setups: GS and ARKK.
The first didn’t trigger as it was a gap-and-fade, but the latter did and let us risk just 25 cents a share vs. several dollars in reward on the upside.
These types of low-risk, high-reward trades are exactly what we want to find — well, always! — but particularly in these difficult environments where holding overnight can feel too risky.
A mild gap-up after a big down day is not ideal. I would rather have a gap-down today, which stretches the rubber band too far and creates the opportunity for a snap-back rally.
Instead, a gap-up just gives the sellers more ammunition to sell into — which is what we may look to do as well. Still, I want to refrain from getting too bearish after such a notable downside move. If we do fade from the open, the hope is that it gives us a chance to bounce. We’ll see.
There’s a big difference between selling strength in a downtrend at reasonable Risk/Reward pivot points vs. being blindly and stubbornly short.
S&P
Above is a four hour chart, showing several moving averages near current support as the SPY contends with last week’s low. While ordinarily a good bounce spot, we’ve been here too many times lately — the 21-week has been tested in 4 of the past 7 weeks.
Trading $458-and-change now in the pre-market, I’m looking for a possible open above the prior 4H high ($458.90) or a move above yesterday’s high (~$460).
If we get that and fade, it could be a decent scalp on the short side. If it sets up, I will use the high-of-day at that point as my stop.
So for example, a gap-up open and a rally up to $459.25, followed by a drop back through the prior 4H high at $458.90 lets me get short SPY with a risk of 35 cents per share.
Remember, we’re looking for those situations with low-risk, high-reward.
Individual Stocks — BAC, AAPL, UNH, More
The individual setups and Go-To watchlist are for premium subscribers only. If you want to give the premium side a try, you can do so with one month free.
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!