Dr. Duru | Jul 04, 2016 01:05AM ET
T2108 Status: 59.7%
T2107 Status: 62.5%
VIX Status: 14.8
General (Short-term) Trading Call: neutral
Active T2108 periods: Day #98 over 20%, Day #4 over 30%, Day #3 over 40%, Day #2 over 50%, Day #6 under 60%, Day #16 under 70%
Commentary
If not for the currency market, we might think nothing important ever happened.
The S&P 500 (via SPDR S&P 500 Fund (NYSE:SPY) ended June with a 0.3% gain for the month. Embedded within that deceptively placid move was a 2-day 5.3% loss that took
The S&P 500 completes a 4-day recovery from a steep 2-day, Brexit-inspired loss. Sellers finally appeared just as the S&P 500 finished the reversal.
The NASDAQ is still working on its full recovery.
T2108 is still in a downtrend marked by its own 50DMA and now what looks like lower highs and lower lows.
And just like that – the VIX is once again under the 15.35 pivot line – a 3-week wild round trip
A full review of the highlights of this wild Brexit experience is in order.
Now, for each of these steps, I review what I did versus what I think I should have done with the benefit of some hindsight. Some of the mathematics almost seem too simple, easy, and obvious in retrospect…
I went through this detail to examine my thinking and identify areas of improvement. The most glaring mistake I see is the lack of flexibility (feel free to add more in the comments!). I was both too slow and too fast. I maintained well-defined milestones, but I did not wait for confirmation of the meaning of those milestones. In my haste, I was then too slow to reconsider my positioning when the signals were begging me to do so. With epic and historic market moves underway, I should have been more prepared to shift with the market’s changing tides. I am taking that lesson to heart going forward. (Ironically enough, I performed much better in my forex trading through this period by staying alert and flexible at all times).
So, now where does the market stand? T2108 closed at 59.6% after trading as high as 63.8%. T2108 got “close enough” to overbought conditions for me to think just as I did on June 23rd, the pre-Brexit day. The peaks on the S&P 500 from June 8th and June 23rd form lower highs. If the index falls back from here, a bearish bias will make sense…especially if 50DMA support gives way again. A bullish bias makes sense if the market can manage to push T2018 back into overbought territory. In between, I will not make any more bearish moves outside of very specific cases. The same is even more true for bullish positions.
The S&P 500 has now made several attempts at new all-time highs since
SPY’s wild ride since the all-time high May, 2015.
This action begs a BIG question: who is getting exhausted from these wild gyrations, sellers or buyers? If these moves are shaking out weak hands and sellers, then a break to new all-time highs SHOULD lead to a tremendous surge (a classic extended overbought rally). If instead buyers are getting exhausted from picking the market back up over and over, then breaks of key lows SHOULD lead to rapid follow-through selling, particularly outside of oversold conditions. The Brexit swing from euphoria to panic and back to relief is an abbreviated microcosm of the index’s larger wild behavior. The sharp moves carved out a definitive trading range outside of which should lie the next big moves – lots of chop to come in between.
There are a LOT of charts I could show to emphasize some important points, but I will focus on three for now.
Tractor Supply Company (NASDAQ:TSCO) issued an earnings warning on Thursday. The stock barely budged on Brexit and was well on its way to challenging recent highs before the warning. TSCO gapped down about 5%. Buyers stepped in and almost filled the gap before the stock closed near its open. Buyers went right back to work the next day on strong volume. I consider TSCO a single-stock case of the range trade. If TSCO overcomes the post-warning loss, the stock should rally away. A break of the post-warning low, even with 200DMA support nearby, should mean look-out below…
Tractor Supply Company (TSCO) clearly has a gathering of buyers eager to buy into any “discount” on the shares.
I described my new trading strategy for Chipotle Mexican Grill (NYSE:CMG) in the last T2108 Update, link above. CMG continues to provide good trading volatility. I ended the week with shares and put options while flipping in and out of other puts and calls. I see CMG in great danger of breaking through the recent lows given its inability to sustain two big buying surges. The arrest of CMG’s Chief Marketing Office on drug charges should be unrelated to the core business, but it will likely hurt confidence in the company nevertheless. It makes little sense to invest in CMG here until it can regain buying momentum – like first closing above the current post-sell-off trading range.
Chipotle Mexican Grill (CMG) is struggling to sustain momentum to reverse the previous sharp sell-off.
As I mentioned above, Amazon.com was one of my mistakes in getting too aggressive with follow-on bearish positions. On Tuesday, June 28th, AMZN made a picture-perfect bounce from 50DMA support. The test even ended with a classic doji that signals a likely change in market direction and sentiment; buyers and sellers battled to a stalemate. I was successful in hedging that day with a quick flip but had to wait until FRIDAY to log profits on a second hedge that week. AMZN’s rally did not closely follow the general market, but it is now within striking distance of setting a very bullish tone with a new all-time high…a milestone I thought was NOT in the cards.
/h3
Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
h3 Weekly T2108Be careful out there!
Full disclosure: long UVXY shares, long put options on SSO, short AMZN, long CMG shares and put options
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.