Trading GS, ARKK as Market Gaps Down

Tuesday's gap-down creates both opportunity and risk.

Technical Breakdown 

• NYSE Breadth: 52.3% Upside Volume

• NASDAQ Breadth: 57.2% Upside Volume

The market flushed lower on Friday before finding its footing late in the day and closing near flat on the session. 

In that case, it’s no surprise we were left with a mixed 50/50 breadth reading on both the NYSE and NASDAQ. 

However, this type of action is about what we had for the whole week, which makes this week even more important. 

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. 

Remember, it’s the start of earnings season, Opex week and the market just gave us a doji week (AKA an indecisive week). We want to keep the key rotation points in mind (last week’s high and low) and stay ready to pounce, yet ready to take our finger off the trigger in case the optimal setups don’t come our way. 

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S&P 

SPX Weekly

A doji-ish finish to last week in the S&P cash and it’s third test of the 21-week moving average in seven weeks. You know what they say: the more times a level is tested, the more likely it is to fail.

Are we there now? 

It’s something to keep an eye on. Again, I don’t think it would be out-of-this-world crazy to retest 4300 to 4350 area and the 50-week moving average. Currently that would represent a dip of ~9% to 11% off the high. 

That’s eventually. For now, the trend remains higher, but keep in mind there are headwinds to fight through and clearly the strength in the S&P is waning. 

Right now, the level to watch is 4582, which is last week’s low. It’s also where the 21-week and uptrend support (blue line) come into play. Below that and 4495 is noteworthy, which is the December low. 

I mostly want to see how the S&P handles today’s gap down. Do they bid it up  and erase today’s losses or does it act as the “first domino” and we get lower action this week? 

That will determine whether we are selling rips or buying dips. 

Nasdaq

NQ Weekly

The Nasdaq looks a little more precarious, as you can see with the NQ futures above. A clean doji week is being met with selling this morning. 

The NQ finished above that 15,500 support area. Further, it was the NQ’s second consecutive weekly close below the 21-week moving average. 

With this week’s move lower, it’s clear that last week’s low at 15,152 may be in play. Below that and 15,000 is on the table. 

Like the S&P, I want to keep in mind that the overall trend remains higher for now, but I don’t want to ignore the possible downside levels. 

On the upside, 15,500 is the first area of interest (prior support), followed by this week’s current high at 15,653. Above that and bulls can focus on the 10-day and 21-day moving averages and the 15,700 level. 

10-Year Yield

TNX Weekly

Everyone’s latest infatuation is with the 10-year yield (TNX). It had a powerful breakout last week over 1.69 and is running right into the declining 200-week and 50-month moving averages. 

If it continues higher, tech stocks will likely continue lower. Back below 1.69 and we can see some reprieve in tech. 

Individual Stocks — ARKK, GS, Go-To List

I want to see how the indices are going to shake out today. Set to gap down about 1% in the S&P, it creates both opportunity and risk. That has me looking at the Go-To Watchlist. 

Additionally, remember that energy and financials have been our sector leaders lately. With earnings underway now, we’re at risk of losing the financials — which would take one more pillar of strength away from the broader market. Keep that in the back of your mind if they are selling banks this week on earnings.