Today’s Trading Plan: A Market With Psychotic Tendencies
Technical Outlook:
SPX went all the way down to the 1810 level momentarily, and thereby breaking the critical 1812 level. However, immediately right after a WSJ headline came out that OPEC was willing to consider a production cut and that send futures skyrocketing off of their lows – 27 points in less than 20 minutes.
As a result, you have a near perfect test of the lows from January, but I would not find comfort in this bounce as it seemed manufactured with a headline that would guarantee an algo-generated buying spree.
Instead, for there to be a true bottom and an ideal bounce place for the market, the longs need to get flushed, and that likely means a a dip below the 1800 for panic to set in. A WSJ headline just doesn't do it.
In other words, be suspect of today's bounce.
Be careful how much exposure if any that you take into the weekend. It is a 3-day holiday weekend (President's Day). Remember that China hasn't traded since last week due to their Chinese New Year, and by the time the US equity markets open back up, China will have two trading sessions under their belt. That is a lot of risk to take on!
Very important – SPY did confirm the massive two-year, head and shoulders topping pattern yesterday on the weekly chart. That does not bode well for the markets whatsoever! The target on the pattern suggests an eventual 200-300 point move to the downside.
For the bears today, they need to drop price back below yesterday's lows and close it there. Otherwise, the bounce lives on today.
For the bulls today, they need to push price back above the week's highs and create a sense of optimism for a larger scale bounce heading into next week.
VIX stuck just below declining resistance off of the August highs. Again further proof that there is no panic yet in this market. A sustained move above 30, is absolutely necessary.
T2108 (% of stocks trading above their 40-day moving average) dropped 16% yesterday to close at 17.10.
Oil is very strong here at the open up over 4%.
Volume on SPY was notably higher yesterday and above anything seen this week.
Insane price movements every day being created by computer generated trading (HFT's) in a highly volatile market marked with enormous headline risk.
There is a lot of stop-loss hunting out there in the market, and being agile with getting in and out of positions quickly has been extremely important.
