Zooming In To Look For Signs Of Returning Strength
Monday Market Update
The Markets
Friday’s sharp selloff left many charts, major indexes included, with notable medium-term damage.
Moreover, many closed on or near the lows of the day and week. It’s often said, “Markets don’t bottom on Friday.” This is logical, considering the attitudes of many traders and investors when selling accelerates, and key moving averages and other support levels are lost. It’s not an environment that entices dip buying and the addition of risk ahead of the weekend, which could bring more bad news.
The favorable setup for today, at least in the very short term, would have been a large ‘gap down’ opening into further potential support, creating a more attractive buying opportunity.
And since the market rarely cares what we think would be best, it did the opposite - rising at the open, testing some resistance levels, and then selling off further.
To judge the action, we’ll look at the daily and 30-minute charts of the indexes.
The Charts
The daily timeframe is on the left, and the 30-minute chart is on the right panel.
On the daily charts, you’ll see the usual indicators;
🟡 8-day MA
🔵 21-day MA (lighter blue)
🔴 50-day MA
🟢 100-day MA
🔵 200-day MA (darker blue)
The indicators on the 30-minute chart are;
🔵 5-day MA
🟣 WTD AVWAP
🟠 Pivot high/low AVWAPs
SPY gapped higher and then tested August 5 low AVWAP, which held. Then, after trading on both sides, it was able to close the day above the WTD AVWAP. The 5-day MA is pushing down from ~$548 to create a pinch. As those two indicators move closer together, we’ll want to see the price move out of the pinch to show strength and signal that a short-term bottom may have been found.
QQQ is back over the March high pivot level - $449.34 but otherwise is below all the key MAs except for the 200-day MA. That is the next potential support level, near $441.69. It did close above the new WTD AVWAP, like SPY, and has a similar pinch condition. Bulls will be watching for the same potential move higher.
IWM found support at the 100-day MA Friday and is holding that again today. However, the weak daily close (below the WTD AVWAP) shows there is no sustained improvement on the 30-minute chart as it trades below all of the indicators.
DIA opened at the 21-day MA and moved over the 5-day MA and up to test the 8-day MA, but couldn’t hold. It remains pinched between the 8 and 21 day MAs, and just above the confluence of the 5-day MA and WTD AVWAP, preserving at least the medium-term momentum.
TLT Bonds are the bright spot, trading above all key moving averages and AVWAPs.
DXY ‘s most notable feature is the repeated resistance provided by the 21-day MA, which is being tested at the close. Continuation higher would be a headwind for stocks.
BTCUSD also shows some strength, trading above its 5 and 8-day MAs. The next test above is the pivot area and the swing low AVWAP just above $58,000.
The Trade
Take it one step at a time. Look for names that are:
holding key support levels
above the WTD AVWAP
testing and then moving back over the 5-day MA
Example: CAVA
It recently held its pivot low AVWAP for four consecutive days. Then it moved back over its 8-day MA. Today, it moved into the gap and came back down to test and hold its new WTD AVWAP.
That doesn’t mean there was an obvious and easy trade there this morning. But it does mean that this stock is holding up very well while much of the rest of the market is selling off.
Relative Strength.
When the market does begin to rise again, the stronger stocks are worth paying closer attention to.
SBUX is another example of this sequence in action.
After the strong news move, it came back down to test the gap low and the AVWAP from the 2023 pivot high. It’s not out of the woods yet, but it is up and testing its 5-day MA. Can it get back above and stay there?
This is one way to observe and judge the sequence. Notice where price is relative to the various indicators and pivot levels.
One step at a time.
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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
Septemver 9, 2024, 4:00 PM
Long: XBI0920C105
Short:
Options symbols are denoted as follows:
Ticker, Date, Call/Put, Strike Price
Example: VXX1218C30 = VXX 12/18 Call with a $30 strike
