Navigating a Week Full of Gaps | Trading COST, TSLA, JNJ
Bad breadth from Tuesday is followed by a huge gap-up to start December
Technical Breakdown
NYSE Breadth: 89.6% downside volume (!)
NASDAQ Breadth: 69% downside volume
Shenanigans? Yeah, you could say that. Yesterday’s late-day MIM reading flashed $9 billion to sell, erasing any late-day hopes for the bulls.
But that didn’t include the post-close action. Almost immediately after the 4pm cash close, we saw the S&P futures explode higher, rallying 20 handles in about 10 minutes. By the 5pm futures close, the ES was up 23 points and going out at its “after-hours high.”
That’s some end-of-the month trickery right there, as ETFs, mutual funds and others rebalance. Obviously that had some impact on the MIM, as well as the bad breadth.
Remember, we had a 90% downside day on Friday (admittedly, a short session). But that’s essentially two 90% downside days in a three-session span and it has me a little cautious even with today’s gap up.
As of 7:20 am ET, the ES is up 60 points or 1.3%. The Russell futures are leading the way, up 2.2%, while the Nasdaq is up 1.5% or 240 points.
So far, much of the directional action has happened overnight. On Friday, we woke up to big losses, then big gains on Monday. Tuesday’s open was notably lower, while today’s is notably higher.
Those who bought into the close yesterday should fare well today — at least at the open. I would be reducing some of my risk on my long trades on a gap-up open and shift to a break-even stop.
S&P 500 and SPY
For the futures (shown above), bulls need to take out 4670. That’s effectively the high for Monday and Tuesday, but it would also put the ES above the 10-day and 21-day moving averages.
I don’t necessarily expect that all today, (as it’s up another 41 points from current levels), but by the end of the week, it would be a welcomed development for the bulls.
On the SPY (shown below), this week’s high is $466.56. Above that puts more upside in play. If we remain below Tuesday’s high of $464.03 — and thus the 10-day moving average — it can remain a two-way trade for now.
Does it bother me that the SPY came thiiiiis close to tagging the breakout area and the 50-day moving average and is now gapping higher?
Not anymore — but it would have in the past.
I do think it would have been healthier to gap down into this level, find support and reverse higher back through Tuesday’s low though.
Until the SPY takes out Tuesday’s high and the 10-day moving average, Tuesday’s low technically remains vulnerable.
Nasdaq and QQQ
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Individual Stocks
Yesterday we were looking at long setups in Home Depot (HD), Dollar Tree (DLTR) and Macy’s (M). The other names didn’t trigger, but these did.
Apple (AAPL) was the only trade we had from Monday, looking for a daily-up rotation over $160.50. I will definitely be trimming into today’s opening push, with AAPL up 3.1% yesterday and up another 1.9% in pre-market trading.
It’s up to you on whether you want to trim any of the others. Macy’s is a longer-term swing, but the others are short-term setups. If these names gap higher on the day, I will not let them go negative on me (flip from green to red). Not in a tape like this.
You can always stop out and get long again if the setups reoccur.
Bulls will be feeling good at the open, but we have to remember it’s a game of offense and defense and at least for me, defense means not letting a winner turn into a loser.
Costco (COST)
Costco has been a relative strength beast, basically shrugging off the weakness in the market. It’s down into the 8/10-day moving averages. With a sluggish pre-market gain, Costco could be a go-to name today.
If we break below Tuesday’s low, look for it to reclaim this measure and give us a possible bullish reversal entry.
Otherwise, a bounce from here could put $550+ in play.
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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!
Economic Outlook
***Note: Powell due up at 10am ET.***
