The Shakedown 12/9/18



Surprise, surprise. Headlines are leading this market direction.

The market is telling us there is major underlying weakness with how every bounce is sold off. This is completely a risk-off, scalpers market. I’ll likely keep a heavy cash position through the new year as underlying market conditions point to lower prices in the near term. Charts are pretty ugly right now after Friday's close around lows.

After Thursday’s bounce at major support being quickly negated by Friday’s weakness, I am expecting the October pivots ($260 SPY, $157-160 QQQ, IWM $144-145) to break and test February lows. 

In these conditions, no matter which side you’re trading from, know that probability is severely decreased due to these conditions where you get such whippy price action day in, day out. Wednesday disaster down day, Thursday the markets back- everything is ripping higher, and Friday another disaster. We are going to see this type of price action continue in the near term, which is why it’s so important to have an acute focus on risk management. This is not a time to take little cut after little cut every day and slowly bleed out your account. If you’re not seeing it clearly right now, it’s better to sit in cash than to be out here playing the guessing game just to be involved. If you’re more of an active trader, I keep mentioning how this is a time for faster trades, it’s a scalpers market. Singles and doubles, 2:1 & 3:1 risk/reward kicks predominantly (which as we know, is less than ideal to maintain profitability compared to looking for 5:1 winners). 

Be smart, risk management is always our biggest focus. As aforementioned, I’ll be keeping a hefty cash position with the occasional trade here and there that I’ll take a light position. 

I have heard a lot of clamoring about the “death cross” on the SPX, when the 50sma crosses the 200sma to the downside. In theory, for an individual stock it is often a heavy sell signal. Things work a bit differently with the big indices. Take a look below at the chart of every occasion the death cross has occurred since the index was formed in 1923.

Focus on the 3 month, 6 month & 1 year returns. 

The SPX has been higher more often than it has not, so I am taking that with a grain of salt. While I believe we’ll see downward pressure on the market in the very short term, I am still watching the market every day to see if there are any dramatic changes in price action. 

Click for link to detailed list of companies reporting ^

With the market selling big time two of the past three sessions, I didn't want to put every chart with the same fat red daily candle. Watchlist is vastly slimmed down after many stocks got ripped apart Friday. We'll see how the market handles these support levels, I'll be watching for relative strength closely to begin building the next one.

Love that EVRG is an energy name that trades relatively wide. Energy stocks (utilities in general) are safe havens during market uncertainty.

A few bear flags for the more active trader below. I probably won't be taking these trades but I couldn't ignore the overwhelming amount of them out there.

[  Sorry Ben, Happy Birthday!! :D  ]


FATE, being a biotech, has not been too effected by the underlying market weakness. It's a big bonus that this stock is not tied to any major indices, so it is not as susceptible to being dragged by the market's gyrations. I would love it to have a few tight consolidation days and for this one to trigger later in the week. Keeping things very tight in this market and comfortable taking a 3:1 winner. 

Trigger: $17

Stop: $16.49

Target: $18.50-19.50

Hope to see you in the chat Monday!

Watchlist (with many more names I'll be watching for digestion) in the following email.

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