Quick Summary:
We are changing it up a bit and watching 6 key charts going into the week: SPY, IWM, QQQ, Energy, Semi and JO. JO is a traditional long setup while the other sector and index ETFs are market bounce plays. While it feels like we are oversold, there is still room before we get to extreme levels for bounce plays, though we will adjust as the market speaks to us.
Video Analysis:
Video analysis goes over the 6 charts and the plan going into the week.
(Just notified that it's just audio. Still worth listening. You can look at the charts in report as they are the same charts.)
Game PlanLet'd do things a little different today. Instead of the usual market analysis and focus list, we are going to hit the 6 charts we are looking at going into the week. Depending on how the market develops, we will adjust and work on a focus list. After these types of correcting moves, certain stocks rise to the top while others stay in the gutters. That's what I will be watching.In the meantime, we really don't know what is going to happen. This 5 percent move is jarring, especially after a few years of regular buy the dips. But guess what . . .this isn't that bad. The definition of a "correction" is 10 percent. There is more room to the downside. If we look at stocks for bounce plays, most that have been hit are still showing stochastics in the 30-45 range. For extreme bounce plays, I want stochastics to be 5-15 (officially 20 is oversold).So right now I am looking for more downside to get us to extreme oversold conditions. For the most part we stay in cash and remain stress free, while those overtrading feel the pain. Once that pain get unbearable, we know it's time to jump in.If for some reason the bounce comes early, we reassess and look for opportunity to join or short a "dead cat bounce".These types of corrections don't move in a straight line and can fake people out day to day. Do not get caught up with the daily gyrations. Unless you are a day trader, they shouldn't worry you.The two sectors that are closer to extreme levels are energy and semiconductors. For this reason, we are watching the ETFs. We look to these as our primary bounce trades. As the week progresses, I will add some individual stocks, but prefer the safety of ETFs. The gain will be a little less, but so will the losses.$DIG has been hit hard, but is currently at 26 stochastic and has a few more points to hit February lows. That is the best level for a bounce trade and what we will stock. Now if we get a clear signal that the money is coming in, we will adjust.
SMH formed a double top and Friday broke the bottom of the trend line. With traditional technical analysis this signal the start of a down trend. Price has already hit one support level, and the next is about 15 points lower. I would not be surprised if we get a gap fill bounce to the gap in near the 200 dma, which would provide a good short opportunity. Bounce plays will start within the 60-75 level when stochastics hit below 20.
In my quick preliminary search of energy stocks, here are some good candidates to watch for bounce setups: UNT, ORIG, FTK, PES, TROX, CBT, QRE, WLL, PTEN, HES, NBR, APA, DVN, NOVI will send out a semi list on Monday.One key commodity that has completely ignored what markets are doing is coffee (JO). It is nearing all-time highs with a strong RSI. We will watch for entries on breakout or pullback to gap levels.
Now let's analyze the 3 major indexes, which we will also watch for bounce trade using leveraged ETFs.IWM has already broke August and May lows, unlike QQQ and SPY. However, readings for stochastic are still up at 26. We want this under 20 before looking for a bounce play.
QQQ is nearing August lows and got hit hard on Friday, but still is not near extreme oversold levels (stoch. at 40). Ideally we see a move to the 200 dma 3 points lower.
SPY is the most complicated to analyze. The August low is near. A break of this completes a double top breakdown. A point below at $189 is the 200 dma. Which do we play for a bounce? I will wait for the 200 dma because stochastics will hit a better number. We are not really very oversold yet. The May lows would provide the best bounce entry and would create the most pain for the most people.
These are the key charts for us going into the week. We will adjust as the market gives us signals. Until then, stay safe and stay small.Please read the post 23 Laws of the Part Time Swing Trading the Market Speculator Way and How to Anayze Your Swing Trade Results It is important to know these rules if you trade off the Report.
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