12/29/2018 Stocks bounce and retest February lows from below. Short term direction is unclear, but long term we are looking for more downside.

Hi everyone. Stocks had a very unexpected bounce upwards this week. I suspect most of the bounce was due to shorts covering (profit taking) since we had no significant news to act as a catalyst. 

QQQ weekly 12_29_2018.JPG

QQQ has regained the February lows near 150. This could signal a bear trap since most people would be stopped out anywhere below 150. As a result, we could easily see more buying up to the 170 level until we ultimately move lower. Out of the three major indexes, QQQ is doing the best by far. 

SPY Weekly 12_29_2018.JPG

SPY (the stock market) is having a lot of trouble breaking past the February lows at 250. We retested it from below and have pulled back slightly. I suspect this 250 level will act as strong resistance in the following weeks. A weekly close above 250 is bullish, but the longer we stay below 250, the more bearish the charts are. 

DIA Weekly 12_29_2018.JPG

DIA has closed right on the February lows at 230. If we see a close above 230 next week, that’s bullish, but if we close below that, it would be bearish. The DIA chart is nearly identical to the SPY chart. 


 

One of my readers left a comment asking me about book suggestions and how to get a deeper understanding of the markets. I recommend the Market Wizards series by Jack Schwager and What I learn Losing a Million Dollars by Jim Paul. These books will hopefully get you thinking in a different way about the markets. If not, at least they are very entertaining books. 

Other than reading those books, I recommend taking detailed notes of your trades in a trading journal. I have a word document with charts and detailed notes about each of my trades. Below is an example of a past trade from my trading journal. 

6/4/2018 FANG – Pullback to Value (This is the type of trade)

FANG (In the chart below, SL = Stop Loss and PE = Profit Exit. RR = Risk Reward ratio) 

1.png

Daily Chart Above

2.png

Weekly Chart Above

3.png

Notes:

At 9:20 AM on Tuesday 6/19/2018, I removed my profit exit on FANG and am waiting for an end of day candle to decide what I want to do with the SL at 103 and the new profit exit.  The reason is that the market is selling off hard, and FANG is up over 4%.

6/21/2018 – Two days later, FANG drops about 4% intra-day and I sell near the low of the day because I’m scared of losing my profits. God damn it.  Don’t get rid of profit exits after setting them ahead of time.  Sold at 124.74

7/9/2018 – Sitting at 137 and the biggest dip was to 121.5 ish.  Yikes.


 

See you next week, and I hope you enjoyed this week’s blog post. 

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