Now that my new book, Make Money Trading Options, has been released, I can speak about the trading strategies I use. In Part 2 (at bottom), I discuss the winning stocks of the week using The Test Trading Strategy. You don’t need to buy the book to understand the strategy, but if you want to, here are the links: Amazon: https://amzn.to/3kqw5zQ. Barnes and Noble link: https://bit.ly/3rbr28Q
PART 1: WHAT THE INDICATORS ARE TELLING US
This is what the technical indicators are telling us this week:
One-month trend = In Recovery. The short-term indexes plunged last week before recovering on Friday afternoon. It was an amazing save, as the S&P 500 ended the week HIGHER by 30 points, closing at 3841. It was a close call, because the indexes fell below their 50-day moving averages during the week. On Sunday night, the S&P 500 futures are higher (but that could change at the open). SPX is slightly above its 50-day moving average and trying to stay above. Look for either a strong uptrend or a failed rally.
Mid-term (50- and 100-day MA) = Neutral. The S&P 500 fell below its 50-day moving average during the week before a last-minute save on Friday afternoon. Indexes could go in either direction.
RSI: (S&P 500) @ 60 (WEEKLY) = Slightly Overbought. RSI warned the markets were overbought last week and it was right. The indexes plunged for the next three days. Now RSI is slightly overbought, so anything is possible this week.
MACD (WEEKLY) = Neutral. MACD is above its zero line and slightly below its 9-day Signal Line. It’s a coin toss.
Daily Intraday Volatility (VIX): 24.66= The VIX spiked during the week as fear returned for a few days. By Friday, all was well again.
Comment: I’ll try and be brief. Last week was vicious for many longs, who got whipsawed and smashed. On some of the trading boards, some traders complained of losing thousands of dollars, and some lost hundreds of thousands of dollars as their underlying stocks plunged. It could have been a lot worse until a last minute save by the algos on Friday at midday. This time it was the shorts who got smashed.
These are dangerous times. It feels like we’re getting closer to a bear market, and may already be there. However, the bulls are coming out in force to make sure that doesn’t happen. Watch the 50-day moving average. If SPX and the other indexes fall below their 50-day MA this week, and stays below, that would be a huge red flag. I’m also noticing that the leaders such as Amazon are faltering, which is another red flag.
PART 2: THE TEST TRADING STRATEGY (Analysis)
On Monday, March 1, the futures pointed to a huge up day. The odds of a Bullish Steamroller was strong. Sure enough, the indexes blasted higher right out of the starting gate. My associate used the Test Trading Strategy and found three stocks that exploded higher than the others: W, ETSY, and QQQ. He used the paper money program to probe and found that W (Wayfair) was the strongest of the three. Within the hour, he had bought W call options and sold at the end of the day for a substantial gain. Because the market has been so flaky lately, we are often holding positions for a day.
Bottom line: I am always on the lookout for Steamroller Days, Bullish or Bearish. I don’t try to guess market direction. I follow the trend. Then I find the strongest stocks and I buy if an uptrend ((based on what I see in the paper money program). This week, it appears as if there will be a strong opening that could turn into a Bullish Steamroller.
Here’s a MarketWatch article I wrote about the Bullish Steamroller: https://on.mktw.net/3bkuicI
If the above analysis is helpful to you, email me at firstname.lastname@example.org to let me know. If you find it unhelpful or ridiculous, email me to let me know. Based on the replies, in the future, I may add to or even remove the test trading analysis.
For daily results of multiple indicators, read Yardeni Research: https://goo.gl/eT3fzA
For insightful analysis of the stock market, read Lance Roberts:www.realinvestmentadvice.com
For insightful analysis of economic conditions, read Wolf Richter: https://wolfstreet.com