Simpler Summary 10/6/17

October 6, 2017 | Danielle Gum

Simpler Summary

The market has been on fire this week, and it seems as though we got our wish – the markets made their break from the chop and they seem to have chosen their direction. The Dow, S&P Futures, Russel, and NASDAQ repeatedly make new highs and with those highs, new records. From Monday-Thursday this week, the indexes roared higher before digesting their moves on Friday. Admittedly, we are extended all around, but the market hasn’t given us signs of stopping just yet. Of course, markets always return to the mean and we know that possibility is on the table. But for now, where do we stand? Let’s take a look at some charts, and see what our traders are thinking going into the weekend.

Dow Jones Mini – Daily Chart

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Taking a look at this daily chart, it’s easy to say that the trend is up. Where it will stop, nobody knows. The fact remains that we are extended and due for a pullback, but that hasn’t done anything to change the overall structure of the trend.

Nasdaq – Daily Chart

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As we can see from this Nasdaq chart, the daily Squeeze has fired long, and we are only two bars into the Squeeze. We have met our 127.2% extension targets thus far.

S&P Futures – Daily Chart

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The S&P Futures price extensions and all-time highs are pictured above.

The Russell 2000 Index

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The Russell finally paused at its 161.8% extension target.

Simpler Sentiment

Touching base with JC  today, here’s what he had to say:

As we start to ease into the next round of earnings, the markets have continued to show their resilience, seemingly erasing the need to be cautious. At the end of the day, the markets are going to do exactly what they are going to do, regardless of news and thoughts and feelings about what they should be doing.  Whereas some indexes suddenly seem extended, there are plenty of stocks that are getting warmed up, and we are heading into the thick of October with weekly squeezes all over the place. But isn’t this the time of year when markets roll over and die?  Well, it has been in the past, and we always want to take risk into account when we are placing trades, but at the end of the day, the markets are in a situation they have never faced before, and they have permission to do what they damn well, please.  Set aside opinions and focus on the setups.

Let’s check in with Henry and see what he has to say about this week:

These weekly wrap-ups are a great place to cover what’s working, what isn’t and thoughts on what that might look like moving forward. For the better part of a month one of the key themes I’ve been sharing here is to follow a simple, straight-forward trading plan and try to keep your “rational” mind out of it. Our rational minds will look at things and find problems lurking around every corner. The media loves to spread FUD (fear, uncertainty and doubt) and that can be difficult to trade around. Instead of the fear of risk, focus on controlling risk, sticking to the plan, and allow the rest to take care of itself. Charts like LMT and and /NQ have been picture perfect Squeezes, right up there with ALRM, BIDU, MSFT….and we shouldn’t have to make it more complicated than that. Will we ever get a correction? Of course! And if you feel like you have to have some kind of short exposure I’ve been doing it through unbalanced butterflies, stepping out 14-21 days and selling something like a delta .30 call as the body, and that’s been one way to give myself a little room to the upside while still having no risk to the downside.

From a much broader perspective, and wrote about this last Friday too, but I think the rally may just be getting started. That may seem crazy, but don’t take my word for it. Look to the weekly Squeezes on AMZN, GOOGL and TSLA – just to name a few. These are excellent bullish charts primed for new highs, and I’m going to do my best to keep that rational mind out of the way, and hang on long into the end of the year.

I love to check in with Raghee to see what her perspective was on the week, especially in relation to the economic calendar events. Where does Raghee stand after the events of the week?

The Non-Farm Payroll reaction was a split between the disappointment of the headline miss in the jobs forecast but the better-than-expected unemployment rate and the average hourly earnings. Fed Fund futures are still confirming a hike of December despite the miss in the employment change. We were ready for a breach of the 1.17 handle on the release and traders with 1.17 long positions could make a decision to hit the eject button and exit (time based stop) or tolerate the expected volatility increase. We also set up and triggered a USD/CAD short on the daily at 1.2565 as the market digested both the Canadian job and U.S. jobs numbers. This was a overbought, fade short sell of a pair of Darvas 2.0 levels. In the meanwhile, the Nasdaq is back in the game and I am watching the KWEB closely for any push higher that could take the sales out of U.S. internet names. I am also still long AAPL and MSFT. The decisive break of 6,000 on NQ is enough for now to put index in the bullish camp with NK, ES, and YM. Speaking of ES, for those traders using the 60-minute uptrend as an intraday opportunity to buy and/or as a trailing stop trade for the daily long from 2485, that exit has triggered. Enjoy your points, feel free to exit. I am still managing the position on just less than half my initial position size and using the daily price movement range (15-20) to trial or “back off” and let this uptrend continue to do it’s thing. The “low trust-short leash” 15 and 30-minute crude oil charts got us out of that position and I walked traders through this in detail in both the chat room and recap (free) video. This is a strategy I use often and it is simple to replicate across any market. This strategy is about using intraday trend set up that can guide you through the volatility of a trend. In other words, a longer-term time frame long position can be managed with a shorter-term time frame buy’s stop loss.

You know who else watches the economic calendar closely? Neil. Here is what he had to say about next week. “After seeing the NFP report early Friday morning as well as the Mkt’s response to it, I will be looking for a test slightly lower next week.  2515 ESZ7 will be my primary target.  I am looking for Crude to test and bounce $48.50 and a place from which to sell the bonds but likely from higher than 152 where they seem to be in balance.  Gold is likely a sell but from higher.  For that I will look to approx $1315 as the level from which to target the last Voodoo line bounce from $1262.  The USD failed from a key level and Voodoo line marking a likely bounce in the Euro for next week.  This all means that YEN, Euro, Gold, and Bonds bounce as the USD retraces.  Stocks retrace providing for the next buy the dip opportunity.”

Checking in with Carolyn, our Fibonacci Queen, she tells me, “Honestly, this is quite boring for me, as the situation remains the same. I think this market is very extended now into timing for a possible high, but I still have to be a cautious bull with tight stops unless I really see a technical breakdown of this market. My favorite trade from this week has been NFLX. I have been in this since late August, and it’s finally making the first key upside target I had another daily setup for a shorter term play come up last week, and this one is playing out perfectly as well. If it continues, $208 is the next target to shoot for.”

NFLX Daily Setup

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Carolyn’s first buy setup zone at $158-164 identified an excellent reversal point. An entry here was good for a full price run of $35 so far. A second buy setup at $174.06-176.16 was great for a NFLX run of $20.

NFLX Weekly Chart

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This NFLX weekly chart gave you a clean buy setup and reversal point at $164 that has hit targets this week.
What does David Starr’s, Elliot Wave work tell him?

“I never want to be surprised at a trending market continuing in its trend.  So while I have allowed for the S&P 500 to have the sort of move it did this week, it would be disingenuous to say that it was my expectation.  Coming into the week I was looking for more upside, just not convinced that it would be this much, or that it would come without any material pullbacks.  At this point my view of the move up from August mirrors my view of the larger advance from last February: I don’t think it’s done, but a pullback could come at any time.  In the case of the shorter-term move, a revisit of 2505 wouldn’t do any damage, on a longer-term basis, a revisit of 2360 would be reasonable.”

Until we see some downward corrections, the market will continue to be stretched.  As a trend trader, I find it hard to buy stretched markets and have no setups to buy here.   On a long-term basis, I am holding onto positions as there is no sign the trend is over.”

What about me? I trade methodically – from one decision, to the next. Yes, the markets are extended, and I’m the last person to ignore the importance of Fibonacci extension targets. It’s one of the most important pieces of my technical analysis. However that doesn’t mean I will stop taking individual setups when the present themselves. Right now, I’m long LVS and WYNN, both are presenting with a daily Squeeze though down on the moment. I’m continuing to play MSFT long via the daily squeeze and move in XLK and the Nasdaq that I documented in the blog last week, which will hopefully get a further push into Microsoft’s earnings report on October 26th, 2017. I added long calls in EBAY today, with hopes of riding the bullish momentum and 30 minute squeeze into the earnings report. What else am I watching? XLU, DUK, PAYC, EXPE, GILD, and FDX.

Dr. John Clayburg said it most simply of all – all he states when asked about the market direction is, ‘UP!”

Follow Up – (MSFT) Microsoft

 

Last week in the blog, I discussed a trade setup that we had in MSFT – a Triple Squeeze – what is that, you ask? It’s one of John’s favorite setups. That is when we have the stock, the index, and the sector that the stock is in all in a squeeze at the same time. This can make for some large moves. Admittedly, the average range of MSFT is much smaller than some of the larger tech stocks like AMZN and GOOGL, but it the options are much cheaper making it a good option to many different traders. For this trade, we had a daily Squeeze in XLK (Microsoft is the second largest holding in the XLK). Buy buying MSFT, we can ride the move in all three, giving us a more powerful and stronger trending trade than if we just had a setup on only the daily chart and the daily chart alone. The full setup on this trade was outlined here: Simpler Summary – September 29th, 2017.

MSFT Daily Chart – 10/6/17

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As you can see from the chart above, the squeeze has fired, and we are nearing 127.2% extension targets. This trade is working out just as planned. I have taken some profits, and I know at least Henry, Raghee and I are holding this one into the weekend, looking for a bid into earnings and higher targets on this very strong stock.

Trade of the Week Follow Up

In case you missed the original setup, you can CLICK HERE to see it.

Expert: John Carter
Underlying: IBB – Biotechnology Index Fund
Trade: Bullish – Short put credit spread on IBB

IBB Daily Chart

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Update from JC – “This is a much more conservative trade than I normally do. Biotech is strong, and it was a good way to get some skin in the game. IBB has fired long, and the trade is safe and sound. Everything is working out as planned!”

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