The Forgotten Third Market Animal

2018-03-02 | Allison Ostrander

 

Simpler Summary

If you are a trader, or like to watch market news, then you are probably familiar with the Two main animals of the Market World: The Bull and The Bear. Both of these animals represent a direction in the market. The Bull market will try to buck up the price higher into the air with its horns. The Bear market will try to swipe down the price with its paw until the bear finds the value at the ground floor. Both are strong animals that in turn show a strong directional bias in the market. However, there is one market direction that seems to be forgotten, along with the animal that I think represents it so well.The market direction that is often not focused on is the Neutral/Sideways market, and the animal that pairs with it so well – The Sloth.

A Neutral Market can feel as if nothing is moving or no action is occurring. The price movement can be sideways, slow, and boring to most traders, much like the Sloth. However, I wouldn’t dismiss the Sloth market so easily. To the average trader, a Sloth Sideways market may seem untradeable, but a wise trader knows this can be a profitable market. Much like the Sloth has survived without having to be the fastest or strongest, a trader can also keep their account profitable in a sideways market that does not have a strong trend or fast price movement. There are many Non Directional Trades that can be taken into consideration in a Sloth Market. For instance, the Iron Condor. Though it may not seem as exciting as the other two types of markets, the consistency of profits using Non Directional Trades in the Sloth Market can quickly compound and grow an account.

So whenever you see markets consolidating after a strong Bear or Bull Market, don’t forget to check the tree branches for great trading opportunities within the Sloth Market. Once you have strategies that can work in any of these three market types, you can truly call yourself King of the Trader’s Jungle.

Simpler Sentiment

John — The markets are wrapping up a volatile week. In the end, it is a tale of two markets. Notably the S&P 500 and the Nasdaq. If we look to the S&P 500, it took the brunt of the selling this week, which pushed it below it’s 50% retracement level on the daily chart, which is hovering near 2705.  A weekly close below this level is bearish. That said, the Nasdaq gaped down and not only managed to fill it’s gap, but it recovered its .618 retracement on the daily chart, which is sitting at 6710.  A close above this level is bullish for the Nasdaq with names like NFLX nearing new all time highs as I type this. How to play it? In this environment, be long the strong and short the weak. This means, I’m not going to buy calls on SPY here, but I certainly like them on NFLX.  Conversely, I’m not going to buy calls on AMZN here, but I’m certainly happy to own them on a tech laggard like FB.  Strong with strong. Weak with weak. Don’t fight the tape.  

David — My base case interpretation of the market patterns is that the move down from January’s high in the S&P 500 is corrective and that the market will eventually make a new all-time high.  Unfortunately, the market isn’t yet giving us clear enough patterns to create any more specific expectation that that.  In particular, it remains hard to say whether the correction is complete or whether February lows need to be broken before turning back up.  If an important low has been struck, then perhaps today’s S&P 500 pullback right to the Voodoo fireline might be the support that the market needs.  Those who are nimble might look at adding long exposure against the today’s Voodoo Lines low.  Just be prepared to get out and try again later if support fails.

Danielle — Where we stand in the S&P futures, we are at a precarious spot. Which will win? The bulls or the bears? The best I can do is watch the internals intraday and know my key levels, trading one day at a time, always managing risk and living to trade another day. On a daily chart, the S&Ps are sitting below the 50 period sma. This is not a good case for the bulls. I have support that comes in lower at 2593, and resistance that comes in higher at 2803. We are in no mans land, trying to decide which side will win. I do have several longs on, in key names. I’m trading AMTD, BAC, FIVE, LULU, BA, NVDA, WING and TEAM. With this volatility, I’m sticking with my only my highest probability setups, and trading them in a more conservative manner than normal. The level that breaks, to the upside or downside, will tell us which way we are going to go. I for one, hope it’s up – but that remains to be seen!

Bruce — Every week it seems the markets get a little crazier and this week was no exception.    Wild swings and twists and turns are becoming the norm.   I think that we are once again at a crossroads and could go either way, higher or lower.   I do think in order to complete the sell off process we do need to retest the low we set on Feb 9th.    I am not sure if we go higher or lower first, but I do still think there is a good chance we retest the low.  So for next week?  I have been saying to stay nimble and light on positions and this will be the case for next week as well.   In addition, if we do go higher, I will scale in downside hedges as I start to slowly build upside positions.

Carolyn — When someone asks me what I think of the market, I can’t just say bullish anymore.  I have to ask what time frame are they talking about.  That’s because in the bigger picture the market still looks ok.  In the shorter term, I still see the SPX as vulnerable to the downside because of my shorter term indicators!  So what is your time frame?????  Also I do have timing for a possible low early this next week, so I’m anticipating that.  I will ONLY act on it however if I see buy triggers and have clear risk parameters.  Remember you can’t trade opinions….you have to trade the SETUPS. Have an awesome weekend!

Henry — This week’s trading has been volatile to say the least and it reminds me of two things on the weekly chart. We can use SPY, but most any market would still apply, and that’s the close below the low of the high bar. In SPY that confirmation sell would’ve come in at 275.45. For things to start looking good again, and actually have some momentum, we’d need to close above the high of the low bar at 275.85. The other thing that’s worth making note of is the break of what has been pretty reliable symmetry, especially if you’re just looking at the daily chart. Time and time again the dips were bought, and none of these dips really exceeded the point value of previous declines. When the flush in February came through that was much larger than many of the prior declines we’ve seen and this is a heads up that we may not be headed back for new highs immediately. Outside of that I’m still trying to buy the best stocks I can find and keeping some cash on hand as well.

Trade of the Week Update

John Carter says: 

See the original setup HERE

Expert: John Carter

Setup: Setup on TWTR

Update from John:  For TWTR, I’m still holding this as we go into the weekend. It closed right at $33.00.  My plan is to cut this loose if it crosses $33.50 to the upside next week.  Remember, $35 would see us hit max loss, which I have no interest in holding on through.  Our max profit would occur at $30.

 

 

 

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