On Friday, July 13, both SPY and QQQ put in divergent highs on the 60 minute chart.
To those not familiar, a divergent high is one where price rises to a new high while the momentum ( PPO or MACD ) and RSI peak at lower levels.
While this bearish divergence can persist for a long time, it is something notable and bears worth watching. It will be very important to watch this relationship in the next couple of days. Does price burn through the divergences and push higher or succumb to the fading momentum? Stay tuned!!
Trade Tip - Zoom down on time frame to identify early turns in price
For stocks you are actively trading, consider creating a 60 minute chart on them. They will signal early turns in price. A 60 minute chart will enable you to fine tune an entry or exit.
Again, this is only really meaningful if you are an active trader and can jump in during the day.
Dr. Copper rug pull
Such beauty and power in a nuclear bomb blast. Photos like this almost make you forget the carnage going on below. The Copper bomb hasn't detonated yet, but the fuse has been armed and some folks are looking for their blast goggles just in case.
Last week I posted about the technical developments regarding copper's recent moves. In that article, it was pointed out that the technical price objective based on the chart pattern was $2.60 / $2.65 on a measured move basis.
With fresh tariff-related news flow, Copper has made a substantial 3% down move overnight from yesterday's close. The chart below shows the approximate area where the futures are currently trading. As you can see it is working its way down to an initial support level.
The next big support level shown on the weekly chart is a band between $2.40 and $2.47. While the current sell off tells us that Dr. Copper is worried about the world economic outlook, a failure at $2.40 would have folks cleaning out their basement safe rooms and checking on their inventory of freeze dried staples. We really don't want to go there.
Chart School - PPO Momentum indicator
Notice the PPO momentum indicator in the second panel from the top. Look at how meaningful the zero line is. The zero line acts as both support, resistance, and a toggle point between bearish and bullish mode. Notice how once Copper momentum dipped under the zero line in late Spring 2011, that zero line became powerful overhead resistance. It kept you in a bearish trade for over 5 years. In mid 2016, it got you out and signaled that something different was happening.
Go look at the PPO on your favorite handful of stocks. Look at the positioning of the PPO in relation to the zero line and what price is doing. At the very least it lets you know when to pay attention and that important things are happening, especially in longer time frames.
Thank you for reading! Hope it helps.
This morning it was my turn to get the rug pulled out on a position that was doing well; Cal-Maine Foods ( $CALM ) This morning in my blog post, I noted that $CALM had been doing well. My long options position was up 11%. Not monumental, but green during the recent market turbulence isn't all bad. Not long after my post the market opened and the floor fell out of Cal-Maine. Down 10%. That's a lot for any stock. I still have not found any real news. #$%# happens!!
Holders of Drug Distributors ( $CAH, $MCK, $ABC ) and Drug Retailers ( $WBA, $CVS ) know what I am talking about. All those names got their rugs pulled out when Amazon entered the drug space with the purchase of PillPack. A fellow trader friend of mine was lamenting that he just entered $WBA a couple of weeks ago and the chart looked good. Rug Pulls don't consider chart patterns. Lots of value was destroyed today on that news.
Expect the Unexpected - Manage your Risk
"Expect the Unexpected" is one of those phrases that are often thrown out there almost as a throw away line. Everybody shrugs their approval then move along. When it comes to the stock market, the phrase speaks to risk. Unexpected news, flash crashes, Trump Tweets, drug trial failures etc happen and you never know when or from where it will come or how bad it will be. Daddy, where were you when the terrorists unleashed a dirty bomb on the doorsteps of the NYSE? And why do we live with Grandma now?
I learned my Lesson
Bad things don't always happen to someone else. A few years ago I had a tiger by the tail. Gilead $GILD was going to the moon and I was hitching a ride. I had a very over-sized position. Stupidly oversized. I was lovin' the ride. Then one day $CVS announced that it wasn't going to include Gilead's super Hep-C drug in their formulary due to it's price. Gilead dropped 20% in like 5 seconds. That stock has not been the same since. When #$%@ happens on an over-sized position it is a mortal wound. I lost body parts. When the unexpected happens with a 1%, 2% or even 5% position, it hurts, but you will get over it. Manage your risk! I learned my lesson. Cal-Maine hurt me today, but as a 1% position, all I will do is shrug my shoulders and move on.
Sidebar - Be wary of crowing about wins
Although posting about a suggested trade and subsequent winning position can hardly be called crowing, I've noticed something. Rug Pulls seem to follow folks who talk about their winning positions. Maybe a silly superstition, but its happened more than once or twice. It's happened to me and friends of mine. I don't open my mouth about anything. Do me and yourself a favor, if you feel the need to crow about a win, do it after you've closed it. Otherwise the market might close it for you. It's my responsibility here to report on wins and losses, but you wont hear me say much or tweet about it. I learned my lesson.
Happy Hunting and Good Trading
Understanding Sector Rotation