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AnonymousAfter sharp losses last week, the major indexes needed a shot in the arm. And IBD readers needed evidence that institutional investors aren’t giving up on the economy or on investing in stocks, even as coronavirus shows fresh cases of escalation across the U.S. and in other parts of the world.
From that point of view, Monday offered such relief. And small caps joined the Nasdaq in pacing the day’s bullish rebound.
The Russell 2000 has been a laggard all year. Yet a 2.3% jump on Monday bested all the other key equity indexes. And that marked a good start by this broad index to recoup some of last week’s harrowing loss of 7.9%, its worst since the market bottomed out in late March.
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1. Stocks rebound towards more opportunity
2. Small company stocks on the rise
3. When everyone is ready for burgers this summerMarket Moves
The surprisingly strong selloff last week appears not to have deterred investors, but they waited until today to begin shopping for stocks to buy. The preference shown by investors is worth noting because they appear to favor micro cap stocks today. Though the benchmark S&P 500 index (SPX) closed nearly one percent above its Friday close, it didn’t notch a new high—unlike the other equity asset classes.
The chart below compares State Street’s S&P 500 index ETF (SPY) with its Midcap 400 index ETF (MDY) and iShares’ Russell 2000 index ETF (IWM) and Russell Micro-Cap index ETF (IWC). The last of these (shown in the lower right panel), shows the strongest price pattern. IWC shares show a bullish engulfing candlestick pattern which also pushes significantly into the exhaustion gap previously reported. Traders may consider playing this gap expecting it be filled soon. Such an action would indicate that investors had gotten over last week’s shock and thus stocks would be expected to rally. However that outcome doesn’t always follow. Historically, such gaps are not filled and the gap thus completes a pattern called an island reversal–which is typically a bearish indication.
Small Company Stocks on the Rise
The chart below compares the Micro-Cap index ETF with five stocks today that (1) closed higher, (2) have been on an upward trend for the past month, (3) have a market capitalization of less than $300 million, (4) have a share price over five dollars, and (5) have made more revenue in the most recent quarter than they made in the last quarter. These stocks include Celldex Therapeutics (CLDX), Nautilus (NLS), Jumia Technologies (JMIA), Carroll Restaurant Group (TAST), and Century Casinos Management (CNTY). CLDX shares rallied strongly into the close surpassing a 300% gain in just the last three days. These are the kinds of opportunities every small-company investor hopes for, but these are comparatively rare.
When Everyone is Ready for Burgers this Summer
Of the stocks above TAST may be worth a closer look. These shares belong to Carroll Restaurant Group, an investment company that owns and manages nearly 15% of all Burger King stores, over 400 Popeye’s chicken franchises, and more. This company has rebounded strongly from the pandemic-driven lows, rallying from nearly one dollar a share. The good news is that the upside is probably still intact for this company because the economy still has a ways to go before fully rebounding and people are able to spend again the way they used to. As that process unfolds over the summer, it may spell opportunity for TAST shares to rally further.
The chart below details a Fibonacci channel projection that lines up with the former support price of around six dollars a share by the end of July. Such a diagram is no guarantee that shares will get to that price in the allotted time, but it does create an opportunity against which a trader or investor could compare risk.
The Bottom Line
Stock market indexes rallied off support to regain the levels they had fallen to last week. Investors heavily favored stocks in the Micro-Cap index. By itself this is often a bullish indication, however, if more buyers don’t make the price action follow through, it could spell trouble ahead
AnonymousThe stock market suddenly looks less burdened after indexes continued to rebound Tuesday, up for the third day in a row.
Indexes closed well off session lows after shaking off a morning tumble. The Dow Jones Industrial Average added 2%, the S&P 500 tacked on 1.9%, and the Nasdaq composite advanced 1.8%.
Those were solid numbers, accelerating in percentage gains from the two prior sessions. The Nasdaq has just about wiped away the steep loss of 5.3% from Thursday, while the S&P 500 and Dow have a larger gap to make up. At Tuesday’s highs, the Nasdaq matched last Wednesday’s low, effectively erasing the price gap caused in Thursday’s sharp sell-off.
In another positive step, the S&P 500’s jump Tuesday was enough to erase Thursday’s distribution day. The index rose more than 5% from that session’s close. The Nasdaq came quite close to wiping out its own distribution day from Thursday, but didn’t rise quite enough.
With just two distribution days in the S&P 500 and Nasdaq, the market has a bit less weight on its shoulders. Thursday’s sell-off still stands out as a schism in the index charts, so don’t drop your guard just yet. The Nasdaq faces a new test of the 10,000 level.
1. Buyers and sellers battle for stocks in volatile trading
2. Market psychology in one intraday chart
3. Where is the money flowing towards?==================================================================================================================================================
Market Moves
The benchmark indexes closed higher on the day, despite selling lower than the price at the opening bell. The conflict apparent between buyers and sellers today sets up the rest of the week as a battle ground between support and resistance. The S&P 500 index (SPX) closed nearly two percent above Monday’s close, cutting into the territory created by last week’s exhaustion gap and island reversal signals. If buyers continue to push to higher closes those signals will fail, and that kind of failure is a strongly bullish signal.
This example shows that investors were anchored to the previous close as being important. Perhaps individual investors felt that they wanted to get out of the market earlier but weren’t able to do so. Perhaps institutional investors had too many shares to sell in one day. Either way once the price returned to previous levels many of the market participants today quickly took advantage of the opportunity.
For chart watchers, this provides an important measuring point. The more price tends to drift lower (or higher) from these two levels which show evidence of support and resistance specifically, the more the price will forecast its future direction in the weeks to come
The chart below compares State Street’s S&P 500 index ETF (SPY) with three other sector index ETFs including Financial (XLF), Discretionary (XLY), and Energy (XLE). All four charts show a pattern similar to the one labeled in the upper left panel, with evidence of both support and resistance. The past two weeks investors have shown classic signs of something known as overhead resistance.
While there are many patterns that seem to articulate how sellers are resistant to holding on to a security beyond a certain price level, this specific form of resistance betrays a particular psychological reaction among investors. This behavior is often considered a manifestation of behavioral biases such as anchoring. The evidence for these biases can be seen in the chart as the price drops on Thursday and then rebounds today. This demonstrates that many investors perhaps wanted to close out positions as the price got back to something slightly higher than last Thursday’s opening price.
Market Psychology in One Intraday Chart
The chart below zooms in to a 5-minute view of the price action on Apple (AAPL) today. The chart notes several important observations. Astute chart readers recognize four bullish signals within these moves: (1) the way the stock rebounds from the Fed Chairman’s initial remarks to the U.S. Congressional committee, (2) how the point at which the price rebounds corresponds with yesterday’s high, (3) how the price gravitates throughout the day around the $350 price target published by a Deutsche Bank analyst last week, and (4) the way the price closes more than two dollars higher than the price target at the end of the day.
These investors appear to be looking for excuses to buy the stock. They also appear to be willing to shrug off bad news quickly and surpass expected market valuations. These behaviors are notably absent in bearish markets.
Where is the Money Flowing?
If investors are going to continue to seek out opportunities to buy stocks, it will be useful for chart watchers to anticipate where such purchases might likely occur. Sector comparison makes for a useful tool to help anticipate market moves. The 15-minute chart below compares the major market sector ETFs (issued by State Street), over the past three days. The strongest two ETFs are those for Energy (XLE) and Basic Materials (XLB). The weakest two are Consumer Staples (XLP) and Utilities (XLU).When investors are nervous and seeking safety, money typically flows to the latter two ETFs. The fact that these are lagging over the past three trading sessions is a clear indicator that investors are seeking opportunity over safety. That is a bullish indication.
The Bottom Line
Investors anxious to buy on the dips battled sellers creating overhead resistance today. Despite this dynamic, many stocks, notably Apple, could be observed with price patterns that indicated how willing investors are to remain invested despite uncertainty. The sector distribution seems to imply that investors are favoring opportunistic sectors over safer ones right now.
AnonymousAnother day of out performance for the Nasdaq composite Wednesday ran into a brick wall as sellers came into the stock market during the final hour of trading. The Nasdaq came to within 9 points of the 10,000 level, led by strong showings from internet retailers, select software and semiconductor stocks. But a 1% gain faded to less than 0.2% by the close.
The Nasdaq topped 10,000 last week before Thursday’s massacre. The sell-off amounted to a key test of the 21-day moving average, where the Nasdaq ultimately found support. The stock market fired a warning shot that day, and there could be more in coming days and weeks. But until meaningful selling starts to hit the charts of leading growth stocks, there’s no reason to adopt an overly bearish stance.
Selling was more intense in the Dow Jones Industrial Average and S&P 500, but lower volume tempered the declines. The Dow Jones industrial’s gave back 0.6% and the S&P 500 fell nearly 0.4%. Small caps lagged badly, with the Russell 2000 down 1.8%.
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1. Gold and Silver prices maintain gains
2. Facebook holds above price breakout
3. The tech is real, the valuation is notMarket Moves
While most stocks pared recent gains today, precious metals ticked higher. Gold and Silver prices remain elevated suggesting investors remain nervous about what the future may bring. The chart below shows how the price of gold, as tracked by State Street’s gold index ETF (GLD), has remained in a trading channel since markets began rebounding from their lows. Though silver prices, tracked by iShares Silver Trust ETF (SLV), broke out of their initially undervalued channel, they remain near pre-pandemic levels.
The timing of the moves on gold and silver is interesting because they fell along with stocks early in the COVID-19 scare. However they rebounded more quickly than stocks, suggesting that many investors were looking to the precious metals as a hedge against falling asset prices. Now that many stocks have reached their former price levels, the logic would follow that this price premium should dissipate. The fact that it hasn’t suggests that stocks may have a bumpy ride ahead. On the other hand, if the support levels from these price channels are broken, it would signal a bullish move for stocks as money rotates out of one asset class and into another.
Facebook Holds Gains Above Price Breakout
When stocks or other assets hold a price channel it becomes something for chart watchers to interpret and traders to strategize over. The price channel on Facebook (FB) is interesting however, because it begins where the pre-pandemic highs left off.
The chart below diagrams the general trading strategy held by pattern traders for channel breakouts. Chart analysts will find this pattern interesting for a different reason. Even though the S&P 500 (SPX) benchmark index struggling to reach its former highs, it appears FB investors are already signaling that they are optimistic about the future. Should the lower level of that channel be broken, it would imply a change of investor sentiment.
The Tech is Real, the Valuation is Not
For those investors who haven’t happened to notice the incredible move on Nikola Corporation (NKLA) shares, you might just now have become aware of the latest daytime drama presented by the stock market. The most interesting plot twist is that this erstwhile small company that has never fully built a truck and sold it, now has a market capitalization bigger than Ford (F).
Strangely, the comment most people make when they find out about the company’s stock move isn’t, “how crazy is that!” but rather, “is it too late to get in?” Such is the nature of the current market and its participants. At this point the stock is well into the arena of high speculation, so it is impossible to predict whether the values will keep rising or crash lower. Bears will point out that the PE ratio is currently sitting at 1,300. Bulls will point out that this is only half the PE measure on Papa John’s (PZZA) and that Nikola has over US $10 billion in pre-orders for its commercial truck.
Astute chart watchers know that as long as this stock holds its price levels, it is a good sign that investors and traders aren’t abandoning the market. However any trading below $30 per share may signal a major change of sentiment.
The Bottom Line
Investors seem to be hanging on to their nervousness about the near future of the market as evidenced by the price patterns on gold and silver. Facebook and Nikola shares might provide some insight on whether investors are changing their minds about holding on to stocks they have purchased since the low prices in April.
SPX AT 3087
I’m going to add a Bear Call spread to this trade to take in credit and make this trade profitable in a range of 2488 and 3290
I’m selling a 15 point wide call spread around 15 delta (short strike)
We’ll continue to monitor this trade and make adjustments if needed
Order Ticket Type Asset Duration Strike C/P Buy To Open SPX 17JUL 3315 CALL Sell To Open SPX 17JUL 3300 CALL Total Credit: 2.20
AnonymousLots of people don’t realize a stock needs to take a pause after a long rally. As long as the 50 Simple Moving Average is moving up and 10 and 21 Exponential Moving Average are not falling, the stock is a buy with a defined stop under it’s 50 Simple Moving Average. I bought this stock on the 18th just before the stock broke out the next day with an explosive 9% move on extremely heavy volume.
Anonymous
AnonymousIchimoku cloud is a type of technical analysis method that is often simply called Ichimoku. It is based on Japanese candlestick charting to predict future price movements.
Only in the 1960s did Ichimoku came to the attention of the public when a Japanese journalist named Ichimoku Sanjin, also known as Goichi Hosoda, released it publicly after three decades perfecting it.
The idea behind the Ichimoku Cloud Strategy is to use a moving-average based trend method to indicate where a stock is likely headed next.
In addition to price action, Ichimoku uses time as another element, and because greater data points are used, it is generally regarded as providing a clearer picture than Japanese Candlesticks.
How The Ichimoku Cloud Strategy Works
Ichimoku cloud is designed to spot direction and momentum in order to help you make buy and sell decisions more easily.
Five indicators are used with each corresponding to a different timeline.
Ichimoku Cloud
The cloud is known as the Kumo and is what grabs your attention right away because it’s the most noteworthy of the five indicators.When prices are above the cloud, the trend is positive. And when prices fall below the cloud, the trend is negative.
When the price action takes place within the cloud, it is believed that the trend is flat.
But how do you know when the trend is strong?
Leading Span A Line
The next indicator or line to pay close attention to is the Leading Span A, which is also known as Senkou Span A.When share prices rise above the Leading Span A, the top line acts as support while the lower line acts as a second support level.
Leading Span B Line
On the other edge of the Kumo or cloud is the Leading Span B line, which is called the Senkou Span B.When the Leading Span A line rises above the Leading Span B line, the uptrend is strong. On technical charts, this produces a green cloud.
Conversely, when the Leading Span B line falls below the Leading Span A line, the downtrend is strong. Generally, this is represented by a red cloud.
But how can you use Leading Span A and Leading Span B lines to identify resistance and support?
How To Spot Resistance and Support
The way the Leading Span A & B lines are constructed means the the clouds which form are plotted 26 days ahead of the most recent price action.So, you can quickly identify where future resistance and future support will likely be.
How To Use The Ichimoku Cloud Indicator
The cloud is defined the region between the Leading Span A and B lines, otherwise known as s the Senkou Span A and B lines.Both current support and resistance lines as well as potential future support and resistance lines are identified by cloud edges.
When prices change, the cloud or Kumo changed height and shape, which in turn affects support and resistance levels.
Large price movements form thicker clouds, creating stronger resistance and support levels while the cloud height signifies to the extent of price volatility.
When the clouds are thin, support and resistance levels are viewed as being weak. At times like these, it is believed that prices can pierce through those levels more easily.
Bullish Indicator
The bottom line is when the Senkou Span A or Leading Span A line rises above the Senkou Span B or Leading Span B line, the trend is bullish.Bearish Indicator
And when the Senkou Span A or Leading Span A line falls below the Senkou Span B or Leading Span B line, the trend is bearish.
Trend Reversals
When the Senkou Span A and B lines switch positions, leading to Ichimoku cloud twists, trend reversals may be seen.Ichimoku Cloud Explained: How To Identify Strong Trends
The angle of the cloud can be used to gauge the strength of the trend.When the cloud is rising upwards at a steep angle, a strong bullish trend is generally evident.
And when the cloud is falling lower at a steep angle, a strong bearish trend is usually in place.
Sometimes, clouds will form behind the price action and these are known as Kumo shadows.
Buy & Sell Signals
A buy signal forms when the green line, known as the Chikou line, rises from below the price action to cross above it.A sell signal forms when the Chikou line (green line) crosses below the price action.
Five Lines Of Ichimoku
Ichimoku comprises five lines:1. The Tenkan Sen
2. The Kijun Sen
3. The Chikou Span
4. The Senkou Span A
5. The Senkou Span BWe’ve already seen a few of these but let’s take a look at the others.
1. Tenkan Sen
The Tenkan Sen is a measure of the average of a price’s highest high and lowest low for the previous 9 periods.It is not a simple moving average over the prior 9 periods as some contend.
The philosophy behind the Tenkan Sen measurement is that the average of closing prices over a period is less valuable than the average of price extremes.
By following this method, the concept of equilibrium is introduced to technical chartists when using Ichimoku.
When you compare the Tenkan Sen to the simple moving average with the same periodicity, the Tenkan Sen shows the midpoints and flattens often, which represents non-trending price action during the previous 9 periods.
The Tenkan Sen can act as support and resistance too as you can see. While the price action breaks below the simple moving average, creating false triggers, the Tenkan Sen displays better support levels.
To spot momentum, you can examine the angle of ascent or descent.
A sharp angle of ascent signals strong momentum to the upside while a steep angle of descent displays strong momentum to the downside.
How accurate is the Tenkan Sen?
Well, because it is a shorter time period indicator, it tends to be less accurate than the Kijun Sen, which features 26 periods.
But it does provide a first glimpse that a trend may be on the verge of changing.
2. Kijun Sen
Similar to the Tenkan Sen, the Kijun Sen is a measure of the average of the highest high and lowest low prices, albeit over a longer timer period: 26 versus 9.It is generally regarded as being more accurate because of the longer time span.
To figure out which way the trend is moving, simply look to the direction of the Kijun Sen.
When the price rises above the last highest high or falls below the last lowest low, the Kijun Sen will move up or down respectively to signal a bullish or bearish trend.
It can also act as a level of support on the downside and resistance on the upside.
Some traders view the Kijun Sen as being like a magnet so when the price rises above or below the line rapidly, the price is often attracted back to the line.
To make buy and sell decisions, traders look to Kijun Sen as a gauge.
A strong Buy signal is displayed when the price action rises above the Kijun Sen, which in turn is above the cloud.
Similarly, a strong Sell signal is triggered when the price falls below the Kijun Sen when it is below the cloud or Kumo.
3. Chikou Span
The Chikou span seems confusing at first because the current closing price is shifted back 26 periods!Why on earth would Mr. Ichimoku do such a thing?
The answer is it allows you to quickly visualize how current price action compares to price action 26 periods ago.
By so doing, you can more quickly see the current trend.
When the current price is higher than the price in the past, the trend is expected to continue bullish.
Conversely, a current price below the price 26 periods ago would signify that bearish price action is likely expected.
The Chikou Span also provides levels of support and resistance.
4. The Senkou Span A
The Senkou Span lines measure the mid-point of a price range because they are dividing the combined high and low by two. When the Senkou Span A line takes the top position in the cloud it is considered a bullish signal since the shorter-term price is moving above the longer-term mid-point price.
5. Senkou Span B – Leading Span B Definition and Uses
What Is Senkou (Leading) Span B?
Senkou Span B, also called Leading Span B, is one of five components of the Ichimoku Cloud indicator. Leading Span B in works in conjunction with the Senkou Span A line to form a cloud formation known as a “kumo.” The cloud provides support and resistance levels. Both Senkou Span A and B are plotted 26 periods into the future, providing a glimpse into where support and resistance may form next.========================================================================================================================================
Ichimoku Cloud System At A Glance
Buy and sell signals are generated as follows when using the Ichimoku cloud system:Buy Signal
–> Price rises above the Komu or cloud
–> Kumo turns from red to green
–> Price moves above the Kijun Sen
–> Tenkan Sen rises above the Kijun Sen
Sell Signal
–> Price falls below the Komu or cloud
–> Kumo turns red from green
–> Price moves below the Kijun Sen
–> Tenkan Sen falls below the Kijun SenIchimoku Cloud: The Bottom Line
The Ichimoku cloud technical analysis indicator produces clear buy and sell signals to chartists.
You first need to get past some of the lingo, like Tenkan Sen and Kijun Sen. But once you do, the entry and exit points are clear.
Buy signals are generated when prices rise above the cloud, the cloud turns green, prices rise above the 26-period Kijun Sen, or the shorter term Tenkan Sen line rises above the Kijun Sen.
Conversely, sell signals are generated when prices fall below the cloud, the cloud turns red, prices fall below the 26-period Kijun Sen, or the Tenkan Sen line falls below the Kijun Sen.
Anonymous1. Candlestick patterns imply more selling ahead
2. The divergence signal you should not ignore
3. Protecting a positionMarket Moves
Stock indexes fell significantly in today’s trading session. The S&P 500 (SPX) fell 2.6% wile the Nasdaq 100 (NDX) shed just over two percent. The chart below gives a sampling of the reversal signals that appeared on many stocks today.The chart features four influential stocks with bearish reversal signals. The first is an evening star candlestick formation on Invesco’s Nasdaq 100 ETF (QQQ). The next chart, at top right, features a dark cloud cover pattern on Amazon (AMZN). The lower left panel displays a bearish harami on Netflix (NFLX), while the lower right panel marks three bearish engulfing signals on Comcast (CMCSA).
Many stocks showed similar patterns as of today’s close. The fact that these signals are not only prevalent but also occur on the benchmark indexes is an indication that selling is likely in the near term at least.
The Divergence Signal You Should Not Ignore
Apple (AAPL) shares opened lower and held onto most of their gains over the past few days. However a close look at the price action for this stock shows some underlying weakness in its price pattern.The chart below shows a bearish divergence between the price action and the movement of the Stochastic oscillator (shown below). As the price makes higher peaks, notice how the indicator is making lower peaks. This sets up conditions for an increased likelihood that the trend will change for this stock. Because Apple shares are so influential, a change of trend on this stock will likely mean a change of trend for most of the market.
Protecting a Position
At times when selling behavior begins to dominate price action, it is virtually impossible to distinguish between a price movement that leads to a major trend reversal and a price move that represents a buy-the-dip opportunity as part of a continuing trend. In such circumstances investors are usually better off setting a stop loss order to protect their investment gains. The chart below provides two examples of how this might be done.The upper panel features Apple shares and three different settings of the Donchian Channel indicator. This indicator tracks the highest high and lowest low prices in a specified time period. It is an excellent tool for following a trend, especially when traders adjust the time period smaller as the trend begins to weaken.
The lower panel shows how a trader holding Microsoft (MSFT) shares could use the Keltner Channel indicator. By using a 10-day Keltner Channel and setting its multiplier setting to 2, a trader could generate the line shown here. This line makes a good price level to adjust a stop-loss setting. No matter which setting a trader chooses, it is far better to have a stop loss of some kind set on open positions than to risk not doing so.
The Bottom Line
Indexes sold off sharply today and left numerous warning signals on bellwether stocks. Such signals usually indicate that investors should take action to avoid short-term draw downs. Setting a stop loss is a good practice for traders that have long-running profitable positions.SPX at 3058 I’m going to put on a Bear Trap in Aug expiration cycle with 57 days until expiration.
This trade is a combination of a Put Debit spread and a Put Credit Spread.
This set up will have small negative delta at entry and as time goes, this negative delta will increase.
This is a slightly bearish trade set up that will benefit from a grind (not a crash) lower over the next 30-45 days. Please make sure that this slightly bearish set up fits into your overall trading plan and short term market outlook.
Put Credit spread: 21AUG 2450/2400
Put Debit spread: 21AUG 2750/2725
The margin for this trade is the difference between the width of the spreads (50-25) or 2,500 plus the debit paid for this trade.
This trade should allocate $5,000 per 1 contract as planned trade capital.
Profit Target: 10% ROR
MAL: loss of 12-15% ROR
Upside Adjustments: Reduce Put Debit spread to reduce the initial upside risk
Downside Adjustments: NONE
Order Ticket Type Asset Duration Strike C/P Buy To Open SPX 21AUG 2750 PUT Sell To Open SPX 21AUG 2725 PUT Sell To Open SPX 21AUG 2450 PUT Buy To Open SPX 21AUG 2400 PUT Total Debit: 0.75
Anonymous1. Markets signal less fear, but still not unafraid
2. Gold is more than a hedge now
3. When the Canadian dollar rises along with goldMarket Moves
The price of gold has remained relatively unchanged for the past two days after the precious metal broke out of a months-long trading channel. At the same time the CBOE Volatility Index (VIX) fell significantly on a rise of one percent by the S&P 500 index (SPX). This sets up an interesting opportunity for adventurous traders looking for strong gains as stocks struggle when hitting new highs.The chart below details how the VIX fell today, creating a significantly larger red candle than the green candle made by State Street’s S&P 500 index fund (SPY). This implies that investors are rethinking their fear from yesterday and considering re-entering the market. However, it should be noted that the VIX still closed at 32.2, a relatively high level for this index.
If investors are less fearful and yet not interested in buying up the stock market enthusiastically, then chart watchers need to cast a wide net for trading ideas at a time like this. One suggestion might be to consider gold-related stocks from the country that has so many of them: Canada.
Gold is More Than a Hedge Now
The price of gold, as tracked by State Street’s Gold index ETF (GLD), has broken into a higher price range, even as the value of the U.S. Dollar index (DXY) has also risen. That is very significant because gold is most often priced in dollars, which means that mathematically the price of gold is inversely correlated to the greenback. If the dollar is rising at the same time as gold prices, that signals that demand for the metal is growing.The chart below shows how the dollar index moved lower while the price of gold held steady. However, lately the price of gold has been on the rise while the dollar index is also rising. These moves make sense given that investors are feeling both opportunistic and nervous nowadays. It also makes sense that these conditions could likely continue for the next few weeks.
When the Canadian Dollar Rises Along with Gold
Compared to the U.S. dollar, the Canadian dollar (CAD/USD) is strengthening. This creates a double bonus for gold mining companies based in Canada. The chart below compares several of the largest gold mining companies that do business in Canada including: Kinross Gold Corporation (KGC), Iamgold Corporation (IAG), El Dorado Gold Corporation (EGO), Barrick Gold Corporation (GOLD), and Franco-Nevada Corporation (FNV). These stocks did very well in April and appear to be rising off of their lows recently.
The Bottom Line
Stock indexes rose today even as volatility measures fell significantly suggesting less fear for investors. However, less fear is a long way from no fear, so a trade that capitalizes on both fear and opportunity should be interesting right now. As it turns out, Canadian gold stocks appear to be doing quite well.
AnonymousUOA for July 2
1. Stocks hit resistance ahead of holiday weekend
2. Will money flow towards the Utility sector?
3. Pandemic winners still winningMarket Moves
Stocks opened higher after optimistic news from the Nonfarm Payroll report released by the U.S. Department of Labor this morning. However the benchmark indexes seemed to hit resistance as they sold off throughout the session going into the long weekend. The S&P 500 (SPX), the Nasdaq 100 (NDX), and the Dow Jones Industrial Average (DJI) all closed higher, while the Russell 2000 (RUT) closed lower.A more subtle signal in the chart below demonstrates that each of the charts was left with a red candle today. This could turn out to be a new lower high point if stocks continue lower next Monday. While this seems obvious by looking at the chart, there are some reasons it may not happen. Chart watchers may anticipate higher prices for reasons that do not appear on these charts. The first of which is what will happen over the coming few weeks: earnings season. Investors may show patience between now and then.
Will Money Flow Towards the Utility Sector?
The chart below compares State Street’s Utility sector index fund (XLU) with the most influential stock in that sector: NextEra Energy (NEE). It is usually the case that when investors are nervous, utility company stocks go higher, or at least don’t fall as much as stocks in other sectors. The reason for this is that fund managers look to this sector for safety amid market turmoil. However, the main reason Utility stocks are on the rise right now has more to do with Fed policy than investor fear. The dynamic driving this stock higher appears to be a function of market mechanics shifting money around for optimized gains related to interest rates.
Pandemic Winners Still Winning
There is another indication that the resistance in the indexes may be inconsequential over the next several days. Many stocks that have had stellar gains during the rebound from pandemic-induced lows are hanging on to their eye-popping gains. There are several that could be featured, but consider the chart below which compares two noteworthy examples: Amazon (AMZN) and Twilio (TWLO).These two companies are seeing their business models rewarded handsomely during the pandemic. Twilio’s recent news that they will power tracking-technology solutions has this company hitting amazing new highs.
If investors were scared that the market might collapse soon, they would not be sending this stock to such heights. The implication is that any uncertainty in the markets right now is not a function of investor panic–otherwise NEE would be outperforming TWLO.
The Bottom Line
Stocks opened higher on positive news from the U.S. Department of Labor this morning. Though the indexes drifted lower, the subtle details of market dynamics suggest that investors aren’t really panicked. If they were, a stock like TWLO would not have closed higher on the day while a stock like NEE closed lower.======================================================================================
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Ending on one chart and note of caution
The Nasdaq closed at an all-time high for the fourth of July! As we know, new highs are just about the most bullish thing that can happen. However, Willie points out that market internals have been deteriorating over the past month, while price has been printing new highs. Momentum indicators, like the MACD (above), and RSI (not shown), have been negatively diverging from price. Breadth indicators like the % of stocks above their 50, and 200-day moving averages have also been weakening. Bulls want to see these breadth and momentum indicators hitting new highs along with price, rather than diverging like they are now. It’s hard to be aggressively bearish with price hitting new highs, but it’s important to be aware that there are signs of weakness under the surface.
SPX at 3172
I’m looking to put on an Iron Condor with 55 days until expiration. I will use 25pt wide spreads, looking to collect 5.00 credit in total. I’m looking for a resistance level around 3230-3260 to hold while SPX trades inside of a range as Bollinger Bands are starting to compress.
I’m looking to make a 3.00 dollar profit (out of 5.00 credit) and this will represent about a 15% yield on margin. I don’t want to lose a lot more than what I am looking to make, so I will stop out of this trade at 9.00 debit (loss of 4.00)
Order Ticket Type Asset Duration Strike C/P Buy To Open SPX 31AUG 3475 Call Sell To Open SPX 31AUG 3450 Call Sell To Open SPX 31AUG 2800 Put Buy To Open SPX 31AUG 2775 Put Total Credit: 5.00 – 5.20 RUT at 1398
We’re going to scale in Broken Wing Butterfly, starting with Tier 1 about 20 points below current market price and we’ll add Tier 2 and Tier 3 as RUT moves higher.
Here’s my plan to scale this trade:
T1: 1310/1380/1440
T2: 1330/1400/1460 (at 1420)
T3: 1350/1420/1480 (at 1460)I will look to start rolling Tier 1 up 60 points when RUT trades above 1470. I’m looking to make 15% ROR and I dont want to lose a lot more than what I’m looking to make.
Planned capital for this trade is around 8,000-10,000
IWM can be used instead of RUT as it is a 1/10 size contract.
Order Ticket Type Asset Duration Strike C/P BTO RUT 31AUG 1440 PUT STO X2 RUT 31AUG 1380 PUT BTO RUT 31AUG 1310 PUT Total Debit: 4.10-4.30 SPX at 3170
I’m going to close 3300/3315 call spread and leave the rest of the trade open. All other options are puts and all are out of the money with 4 days until expiration.
Order Ticket Type Asset Duration Strike C/P Sell To Close SPX 17JUL 3315 CALL Buy To Close SPX 17JUL 3300 CALL Total Debit: 0.40 – 0.45 RUT at 1476
I have not had a chance to add Tier 2 or Tier 3 yet. For now, I will roll 1140 put down 20 points to 1420. This will bring in a credit that will eliminate all risks on the upside. I will still look to add Tiers 2 and 3
Order Ticket Type Asset Duration Strike C/P Sell To Close RUT 17JUL 1440 PUT Buy To Open RUT 17JUL 1420 PUT Total Credit: 6.5
