Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

morpheustrading

Stock Market Breaks Down, But Two Of Our Swing Trades Breakout

Recommended Posts

Stocks continued to sell off on Thursday, with tech stocks getting hit the hardest. The Nasdaq Composite sold off 1.2%, while most averages closed lower by 0.6% to 0.7%. The Nasdaq sliced through key intermediate-term support of its 50-day moving average, joining the Russell 2000 and S&P Midcap 400.

 

The S&P 500 closed just below (but not a decisive break of) its 50-day moving average yesterday, after undercutting its prior “swing lows” at the 1538-1539 support level:

 

130419SPX.png

 

The 50-day moving average is a very important support level during a rally, as it is basically the line in the sand for the bulls. When the major averages all break below the 50-day MA within a few days of each other, it is usually a good time to raise cash and sit on the sidelines.

 

The evidence below suggests that the market is now in a corrective phase, which forces our rule-based timing model into “sell” mode:

 

There are at least 5-6 distribution days in the market (strike 1).

Most of the main stock market indexes are trading below the 50-day MA (strike 2). We do not count the Dow.

Leading individual stocks are beginning to break down below key support levels (strike 3).

How long will a stock market correction last? No one knows, but there is one main clue to watch out for.

 

Can leading stocks that have recently broken down find support and stabilize? There is a big difference between leading stocks pulling back 15-20% off a swing high versus completely breaking down and selling off 40% or more from their highs. If most stocks hold above or around their 50-day MAs and fall no more than 20-25% or so off their swing highs, then we would expect any correction in the S&P 500 to be limited to around 4-6%.

 

US Natural Gas Fund ($UNG), a current holding in the model portfolio of The Wagner Daily, is in pretty good shape after yesterday’s (April 18) strong advance. The weekly chart below shows $UNG zooming above the breakout pivot, which is always a bullish sign:

 

130419UNG.png

 

As annotated on the chart above, $UNG is holding support of a steep uptrend line (black dotted line), while the 10-week MA (teal line) is beginning to pull away from the 40-week MA (orange line) after the bullish crossover a few weeks ago. One great thing about $UNG is that it has a low correlation to the direction of the overall stock market because it is a commodity ETF.

 

As you may recall, our actual swing trade buy entry into $UNG was based on the “cup and handle” chart pattern we originally pointed out in this April 2 post on our trading blog. Presently, $UNG is showing an unrealized gain of 6% since our April 8 buy entry, and is well positioned to continue higher in the near-term.

 

In addition to $UNG, we also continue to hold Market Vectors Semiconductor ETF ($SMH). Presently, this ETF is holding above its prior swing low, but is struggling to reclaim its 50-day MA. Nevertheless, based on our March 28 technical analysis of the semiconductor sector, we are still bullish on the intermediate-term bias of $SMH.

 

Alongside of $UNG and $SMH, our model portfolio is still long two individual stocks (bought when our timing model was in “buy” mode): Celldex Therapeutics ($CLDX) and LinkedIn ($LNKD).

 

Despite yesterday’s decline in the broad market, $CLDX broke out to a fresh all-time high and is currently showing an unrealized gain of 8.9% since our April 9 buy entry. The daily chart of $CLDX below shows our recent breakout entry point:

 

130419CLDX.png

 

Our other individual stock holding, $LNKD, is roughly break-even since our swing trade entry point. However, we do not mind holding this A-rated stock through a corrective phase in the broad market, just as long as our stop is not triggered.

 

If the price action can remain above the 10-week MA, then we may be able to hold through earnings in early May and potentially catch the next big wave up. As detailed in this article that explains our strategy for trading around earnings reports, we previously netted a handsome gain of 22% trading $LNKD before and after its January 2013 earnings report.

Share this post


Link to post
Share on other sites

You've circled three pullbacks in an uptrend on your S&P chart. I don't really see how this one looks much different, just a little more volatile. And you're at horizontal support as well, if you believe in such things. Why not buy it?

 

If this particular correction runs deeper or leads to a reversal and you had to exit with a loss . . . well the other two worked out so it wouldn't be a problem.

 

Or . . . you can try and call a market top every time things get twitchy :)

 

BlueHorseshoe.

Share this post


Link to post
Share on other sites

If you'd done what I described above and exited on the close yesterday you would have netted something like 30 points, or $1500 per ES contract. I didn't count the drawdown, but it wouldn't have been much.

 

Or do you still think that the stock market has "broken down"?

 

BlueHorseshoe

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Similar Content

    • By adamal7
      Hello guys,
      I'm starting to swing trade commodities, especially soft commodities (corn, sugar, coffee, cotton, soybean, ...). I'm also checking gold and oil.
      My problem is I'd like to know what is the best broker for trading those markets (regulated, large commodity choice) ? For CFD trading.
      I'm thinking of IC MARKETS who are very good with forex and have good trading conditions.
      The concern I have is that I need a broker that offers MT4 as a platform, and also I'd like to be able to open mini lots positions for a better risk management.
      As a swing trader, I'm less concerned by the spread but looking at the financing fees.
      Wish you have a nice day, and thanks in advance.
      Alexandre.
    • By trading4life
      Hello, My name is trading4life.
      I just joined this forum.
  • Topics

  • Posts

    • Ethereum Price Prediction: Long-term (ETH) Value Forecast – July 13     ETH/USD Long-term Trend: Bearish ·         Resistance Levels: $240, $260, $280 ·         Support Levels: $220, $200, $180   On June 26, the ETH market reached its peak price of $340 price level. The bulls tested the $340 price level and were resisted. The market fell to the support of the 12-day EMA to commence a range bound move above the EMAs but below the $320 resistance level. The bulls were facing another resistance at the $320 price level after the overhead resistance.   On July 9, the bulls were resisted at the $320 price level and the ETH market commenced a downward correction. The bears broke the 12-day EMA and the 26-day EMA as the downtrend continues. The ETH price has fallen into the previous range bound zone of $220 and $280. The crypto may likely revisit the previous low of $220 price level.   A trend line has been drawn to determine the duration of the bearish trend. A bearish trend is ongoing if the trend line is unbroken. A bearish trend is said to be terminated if price breaks the trend line and another candlestick closes on the opposite of it. Meanwhile, the MACD line and the signal line are above the zero line which indicates a buy signal.     The views and opinions expressed here do not reflect that of BitcoinExchangeGuide.com and do not constitute financial advice. Always do your own research.                                                                                                                                        Source: www.bitcoinexchangeguide.com     
    • I have written a Trading System simmilar to Elliottwaves, for all markets. Here are the files. Free to try till 01/2020 TRADING SYSTEME.zip
    • Learn both fundamental analysis and technical analysis.  I use the fundamentals to tell me what to buy then I use the charts to tell me where my entry and exit points are
    • Honestly, stay away from cryptos!! They are not regulated. The FCA decided they were gambling, not trading. Are you really ready to lose your money?
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.