Well, you may have heard that a big snowstorm hit Colorado over the weekend, and that is where I happen to be. Not that it would have been any better in Wyoming. I got to choose death by knife or fire. But I woke up to no Internet and had to wade through the snow to clear the back-up satellite dish. It works, but dropping down from Gig-Speed to 50 mpps, in a word, sucks.
So I will be very brief this morning. I am sure that will be a relief, given my recent rants. If time permits today, I will put out something more comprehensive when the Internet is back up.
The sum of my conclusions over the weekend is largely unchanged from last week. The 20-week cycle has bottomed. This is the last run in the sequence of four before the 18-month cycle tops and sets in.
My biggest dilemma is whether this last 20-week cycle will peak early or perhaps even late. That really depends on whether we have started a new, secular bull market as with 1982, 1997, 2003, and 2009. My best judgment is that we have this coming correction will set the stage for the next run. In other words, I am not in the crash camp – at least as yet.
However, I am cognizant of the proposition that a correction is when your money is involved, and a crash is when my money is involved.
Our current allocation of 50% S&P 500 and 50% Nasdaq 100 held its ground Friday. The Nasdaq 100 barely held. Nothing seems on fire this morning in either direction. I want to continue to use an hourly close below the daily 5-day EMA as our stop on both indexes.
I expect the NASDAQ 100 to benefit from some temporary reverse rotation, and the S&P 500 is knocking on the door of new all-time highs. Being a bit self-critical, I see the need to broaden my horizons a bit into some cyclical areas – perhaps even the Dow on the next rotation. I am ok with where we are for the moment.
Day Trading Today
The usual blah blah blah – I don’t typically trade on Mondays. Overnight activity is balanced. Traders did not explore price beyond the recent range in either direction. This means we should deploy responsive trading, using the 3949 all-time high from March 11 as the upper end of the range and Friday’s 3904.50 as the low end. Perhaps the overnight low at 3924.25 could provide support in a more bullish scenario. If so, carry that forward.
For those new to the site, a responsive trade is a counter-trend trade taken against a specific level. The theory is that when two-sided or “balanced” trade is taking place, there will not be enough momentum to push past key levels, and buyers or sellers, as the case may be, will respond to those areas, essentially pushing prices away from them.
In other words, neither buyers nor sellers are in control so they respond to both ends of the spectrum until price breaks in a new direction. This is the opposite of breakout or initiative trading which is more directional in nature and is generally taken in the prevailing trend.
The recent ATH at 3949 may be a breakout point for initiative trade. Watch for the pros running the buy stops sitting right above, then monitor for continuation if a true breakout holds or even consider buying the ATH’s retest after the breakout.
Friday’s low showed a lack of material excess (the minimum two ticks needed not to be poor). That structure could require repair on any liquidation break. Also, there is a virgin (untouched) point of control at 3890.00 from March 10th.
Again, if you are new, our typical approach to day trading, besides identifying key support and resistance, is to follow the sequence of testing yesterday’s high and low and the overnight high and low, depending on initial direction, to see where the market finds the path of least resistance. We are always cognizant that even after the initial drive, no matter how impressive, there is a 50% chance of the market reversing.
Sometimes the overnight action helps us pick the initial direction right out of the gate. In cases such as today, the trading overnight has given us no clue, so we are likely to find the best trades later rather than earlier in today’s session.
A.F. Thornton