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Analysis, Perspective, Trading Strategy
Patience and Selectivity are the Keys to Success
Editor Joe
Duarte in the Money Options
It’s a good market in which to stick with what’s working
while never letting go of the notion that it could all end in one big flash
– flash crash that is.
They say as January goes so does the rest of the year on Wall Street. Let’s
hope so, especially now that the Federal Reserve is officially on hold. Indeed,
now that the Fed is taking a break, the headlines that move the market and
the algos are likely to come from other sources.
Of course, there are plenty of serious candidates for algo headlines. Consider
all the political hot spots in the world just as the U.S. earnings season
kicks off in earnest and the shutdown in Washington continues. Moreover,
even as we scan the shadows for possible nasty things, it is plausible to
consider that there may be a positive surprise coming from the U.S.-China
trade talks given the recent backslapping by both parties after recent talks
and reports over the weekend that China is moving toward easing restrictions
on foreign investments. Given the way the White House likes fanfare, this
would be an opportunity to shift eyeballs away from the government shutdown.
Certainly no one expected a reworking of NAFTA and the subsequent surprise
news from GM this past week.
Thus the current rally in stocks could be a sign that the smart money (if
there is some left that isn’t fueled by algos) is sensing a significant reversal
of the current order. And if stocks can deliver a few more days of bullish
activity onto the price charts, the bears that are still alive will have
to capitulate, likely sending prices even higher for the short term.
So, if and when this is how things develop, we could actually see the end
of the bear market and perhaps the start of something more profitable. Still
it’s never a good idea to go about any trading endeavor without asking yourself:
what could possibly go wrong? And in this case, just about everything could.
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So far so good for Market Breadth
The New York Stock Exchange Advance Decline line (NYAD) continues to be
the most accurate indicator of the stock market’s trend since the 2016 presidential
election. For one thing it correctly predict the bear raid in the fourth
quarter of 2018 when it failed to make a new high in September to confirm
a marginal new high in the S & P 500. This event set up a technical divergence
which proved to be correct in predicting the bear market that followed over
the next three months.
Now much of that damage has been reversed with the most important sign
perhaps being the rise of the ROC indicator for NYAD which measures momentum.
This indicator has rocketed higher to a level not seen since December 2017.
There is also improvement in the RSI indicator, while the NYAD itself is
now within reach of its 200 day moving average. If NYAD can clear that 200
day line convincingly in the next few days to weeks, it will be very difficult
to consider the bear market anything but over.
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1. Over Twenty-Seven Years of
Trading Experience
2. Now Joe is
bringing all his years of expertise
to his new options focused web
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and Profit Delivery.
3. Weekly
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analysis
and
portfolio
updates
gives
you
the
big
market
picture.
4. Joe
has designed and
fully tested a select
group of easy to
follow and deploy
option strategies
coupled with on-
point stock and ETF
picks focusing primarily
in the biotech, healthcare,
and technology sectors.
5. In
depth
individual
position
technical
and
fundamental
analysis.
6. Unlimited
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Indexes Bounce
Despite the selling on January 3, the December 24, 2018 selloff in the
S & P 500 (SPX) had all the hallmarks of a capitulation selling climax:
extraordinary volume, a huge break below the lower Bollinger Band, and a
feeling that the world was coming to an end. Thus the ensuing rally has not
been as surprising as it might have been otherwise.
But the rally has yet to be fully convincing as SPX failed to close above
its 20 day moving average to end last week, although NYAD did close above
its 20 day line.
Indexes Lag NYAD
The NYAD is highlighting an improved market, yet the Nasdaq 100 (NDX) and
the S & P 500 (SPX) are not quite matching the success suggested by the
market’s breath.
Specifically, the On Balance Volume (OBV) on SPX is still lagging the increasingly
healthy picture presented by the Accumulation Distribution (ADI), while these
same indicators look a bit more in synch for NDX. However, the one indicator
which is similar on all charts, NDX, SPX, and NYAD is the ROC which shows
that momentum in this market is on the rise, and that it is to the up side.
Together, these charts suggest that we are still seeing hesitation from
investors to fully return to this market broadly, but that they are moving
into select areas with a great deal of momentum.
Patience and Selectivity are the Current Tools of Success
The market may no longer be in a true bear phase, although given the number
of geopolitical bombs that could explode at any moment things could change
rapidly. Still, the fact that the Fed is on hold has reversed money flows
into select areas of the market.
Among the best performers remain the technology stocks, with stocks such
as Micron Technology (NSDQ: MU) and Applied Materials (NSDQ: AMAT) along
with a select group of international ETFs such as the Brazil ETF (NYSE: EWZ).
So by sticking with what’s working and keeping tabs on the geopolitics and
the Fed, those with patience to sort through the charts, the stories, and
company fundamentals have a chance in this market for now.
I own MU, AMAT, and EWZ as of this writing.
Joe Duarte has been an active trader and widely recognized stock market
analyst since 1987. He is author of Trading
Options for Dummies, rated a TOP
Options Book for 2018 by Benzinga.com - now in its third edition, The
Everything Investing in your 20s and 30s and six other trading books.
To receive Joe’s exclusive stock, option, and ETF recommendations, in your
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All sources of information are believed to be accurate, or as otherwise
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investment advice consult your financial advisor. The analysis
and conclusions reached on JoeDuarteInTheMoneyOptions.com are the
sole property of Dr. Joe Duarte.
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