From the Trading Desk

Big Wave Trading Weekend Update

Stock indexes put in a solid session on Friday. Unfortunately, stock indexes were not able to build off of the momentum that the trading session started with. Instead, stock indexes sold off only to see a decent intraday double bottom turn into a small rally into the close. Still, the fact that the market could not continue building momentum following that strong start tells me that this market is still heavy and that the odds of further consolidation remains higher than the odds of stock indexes marching to new highs across the board.

The Nasdaq and Nasdaq 100 are obviously the strongest indexes right now but only having one area of the market leading is not a sign of an overall healthy market. Instead it appears based on the looks of the Nasdaq and Nasdaq 100’s MACD that we should expect some backing and filling on those two indexes. Looking at the RSI and MACD oscillators on the DJIA, SPX, and RUT you can clearly see that the overall trend is lower so expecting the market to find a bottom and rally from here is a bit premature if not foolish. However, indicators are not price. Price is all that really matters.

If the markets can bounce here and move higher that will help these oscillators turn around and might help build further momentum for the market. However, like I said, sentiment is still overall very bullish and we are heading into earnings season which has been very volatile and choppy the past two years. Getting back to the sentiment note for a second. It was nice to see the AAII bulls/bears come in with bulls now at 37% and bears at 30%. However, the Investors Intelligence survey went in the opposite direction with bulls now back above 60% and bears down to 17%. That is very extreme.

Then there is the NAIIM exposure index that stands at a bullish 94% long and then there is the CNN Greed&Fear index which has come down to a neutral 54. The put/call ratio at IBD jumped over 1.00 on Thursday but the VIX is at 11.54. So as you can see we have some pretty mixed signals on the sentiment front. When that is combined with the price action in the indexes along with their MACD and RSI oscillators and the upcoming earnings season it is easy to see how the market might have a tough time finding any real direction any time soon. Then, on top of that, let’s now throw in a new President. Fun stuff!!

Keep all of this in mind as we head into and trade throughout the upcoming trading week. Now is the time of the year when you must check every new potential trade idea with their earnings release schedule. This weekend IIVI triggered an actionable long signal but earnings are supposed to be released Tuesday before the opening bell. That is simply not enough time to enter the trade, see how the trade plays out, and then possibly exit ahead of earnings if the stock does not do what we desire. So keep an eye on your long ideas and your current holdings. Its earnings season.

Have a great rest of your weekend everyone. I will hopefully be around on Monday as Maui is under some extremely heavy wind patterns right now. It’s very possible I might lose electricity. If that happens, I’ll find a place somewhere to get online. Great luck with all your trading during the upcoming trading week. Trade intelligent and trade with discipline. Aloha from a very windy west side of Maui.

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