Reading The Roadsigns
Market Update August 22, 2024
The Markets
On Monday, we examined a historic V-bottom rise in the major stock indexes. Many speculated on how long it could last and how far it could go.
Nine days? Ten days? More?
But regardless of the day count or percentage gains, Jerome Powell and the FOMC on Friday would be inescapable. Maybe today is the top, and he will push stocks lower tomorrow by withholding rate cuts. Maybe he comes off as very dovish and the market rockets higher still. Maybe he threads the needle perfectly, and the stocks stay flat.
We’ll never know until it happens.
What we do know is that there are road signs along the way to help navigate these turns. One of those signs was the degree of extension in SPY and QQQ.
Comments from Monday
SPY
Price ends the day well above the 8-day MA, so this degree of extension should be noted.
QQQ
Today’s closing price is nearly 4% higher than the 8-day MA, and surely, some rest and consolidation are coming soon.
We also know that volatility usually reverts to the mean.
Price range and volatility
Volatility came and went very quickly. With it came substantial expansions in price action, whether measured by VIX, Bollinger Bandwidth, or Average True Range. A revision to the mean in these levels is to be expected. And it will most likely show up in the charts as a mild pullback or a period of choppy sideways action.
Even still, roads (and markets) can veer off in unexpected directions, be blocked by traffic, or be closed entirely by damage or repair work. But if we pay attention and follow the route, we have a better chance of reaching the destination safely and efficiently.
The Charts
SPY moved back into the 1.618 extension, filled the gap, and reversed. Today, it touched the $554.87 pivot as the 8-day MA catches up. So far, this is a healthy resolution of the extension. ~ $545 to $549 has a gap and the 50-day MA for potential support. A trip to that area while the 21-day MA rises to meet price is possible.
QQQ is back down to the confluence of the 8 and 50-day MAs and also holding in the upper 2/3s of the corrective range. Drifting sideways while the 21-day MA catches up would be best, but a trip down to the 50% retracement level while filling the gap is also possible.
IWM filled the large gap and is taking some time to consolidate. It has many layers of potential support in the 8/21/50-day MAs, the $211.88 pivot area, and the AVWAP from the recent failed breakout high - all between $209.40 and $212.44.
DIA is retesting the breakout while the 8-day MA catches up. Staying above the line would be great - $399-$401 is the ultimate level to hold to keep the bullish momentum.
TLT is still moving within the wide range. Ideally, it would hold above the $96.40 pivot and the 21-day MA.
DXY is getting some relief from the sharp move lower. A continued bounce up near $102 while stocks continue to consolidate or pull back would make sense.
BTCUSD still cannot get over its 50-day MA.
The Trade …
… hasn’t changed much.
Double down on patience and discipline.
Mr. Powell could easily send stocks in either direction tomorrow. Presumably, he will attempt to be balanced and ‘down the middle’ so as not to cause disruption. The best potential outcome would probably be continued rest or even more of a slight pullback while the short-term moving averages catch up.
This could create many more attractive buy setups after the very strong rise. So we’ll focus on our favorite names, identify the attractive buy levels, set the alerts, and be ready to execute.
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The Disclosures
***This is NOT financial advice. This is NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.
Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”), an SEC-registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.
Statements in this article represent that person’s opinions only and do not necessarily reflect those of T3TG or any other person associated with T3TG.
Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed. This may reflect the financial or other circumstances of the individual, or it may reflect some other consideration. Readers of this article should consider this when evaluating the information provided or the opinions being expressed.
All investments are subject to the risk of loss, which you should consider in making any investment decisions. Readers of this article should consult with their financial advisors, attorneys, accountants, or other qualified investors before making any investment decision.
POSITION DISCLOSURE
August 22, 2024, 4:00 PM
Long: PYPL0830P72
Short:
Options symbols are denoted as follows:
Ticker, Date, Call/Put, Strike Price
Example: VXX1218C30 = VXX 12/18 Call with a $30 strike
