Welcome back to IBD's weekly Stock Market Update. Here we interpret the day-by-day action of the latest week to give you an edge for the following week.
XIf this is your first time with us, please read Stock Market Update: Your User Guide. All market comments refer to the Nasdaq composite unless otherwise noted.
Monday, April 20: Ripple From Crude Oil
We've heard of negative interest rates, but negative oil prices? That's new!
Unless you trade West Texas Intermediate (WTI) futures, the reasons and details aren't important.
The fact that something crazy was happening somewhere is what you needed to know.
Why? Because the global financial markets are all interconnected. Think about stocks, bonds, currencies, commodities, derivatives, etc. When one of them breaks, it can have a ripple effect.
A recent example was in January 2018. Several exchange traded notes tied to the Cboe Volatility S&P 500 Index imploded. The Stock Market Update believes it was the catalyst for the sharp two-week 11% intermediate correction.
This time, it was the crazy action in WTI impacting the exchange traded fund United States Oil Fund (USO).
The key question: Would the problems in the huge oil ETF bleed over to the broader market?
Coronavirus Stock Market: Let's Go Crazy
While the May contract for WTI was going crazy, falling to negative $37 a barrel, the Nasdaq composite was trying to hold on.
It dropped just 1% while holding above Friday's low. Although it was showing relative strength, it was still poor action.
Failing at near-term highs, then falling and ending with a 5% closing range, is called a downside reversal. Such reversals imply more weakness to come.
The candlestick had a tiny positive body with a long wick on top. This is one of the worst-looking candlesticks.
The downside reversal and scary candlestick told you to expect weakness.
Tuesday, April 21: The Ripple Becomes A Wave
The market opened with a gap-down near the key 200-day. It felt like we were standing on shaky ground.
By 7:45 a.m. PT, the trap door was sprung and straight down we went.
Trading is war. When one side is taking too much fire, at some point it's forced to retreat. That's what the bulls had to do. Let the bears have the 200-day victory and go find another level to defend.
This is where you must pay attention. Where is the next level? That's the tell.
The 200-day, 50-day and the psychological 8400 level had all been abandoned.
There were two more lines of defense before we'd break wide open. First, the 21-day around 8113. Then the big one. The low of the April 6 Tom Petty "Won't Back Down" FTD at 7617.
Stock Market Update: The Machines Are Back In Town
Being under the 200-day is a big deal.
Why? In our opinion, many rules-based algorithmic funds use this level as a key sell signal.
Your homework assignment for this weekend: Study Aug. 2, 2011, to Jan. 10, 2012, and Aug. 20, 2015, to July 8, 2016.
Focus on the volatility when the Nasdaq composite is below the 200-day. Now look at it when it's above it. There's a huge character change.
Below the 200-day line, action is very erratic and unpredictable — as if it's being pulled by magnets in different directions every other day. It resembles what the Stock Market Update coined the Costanza Market during the coronavirus stock market crash.
Why? Because trend-following algos will be selling when we fall below the 200-day. On the buy side will be algos using reversion to the mean logic. This happens every day. But it feels dramatically magnified the moment we cross the 200-day.
This is machines vs. machines. Humans have fear, greed and hope. Algos have code.
We closed down 3.4% with a closing range of 17% on Tuesday, a huge negative body with small wicks on both ends. The assumption is the bulls are retreating down to the 21-day in the morning.
Wednesday, April 22: Positive Expectation Breaker
Healthy markets open weak and close strong.
Typically, a 2% gap-up is not what you want. But Wednesday it was what we needed.
We were expecting a gap-down. We got a gap-up. If we could hold these levels it would be what the Stock Market Update calls a positive expectation breaker.
Even better than holding the gains, we had a mini "Won't Back Down" day. Besides a blip in the last five minutes, we climbed up all day.
Stock Market Update: Battle For The 200-Day
The bulls clearly didn't want to deal with the machines fighting each other Tuesday. But on Wednesday ammo was spent to hold the 200-day line in the sand.
We gapped above the 200-day and ended up 2.7% for the day. Because the closing range doesn't include the gap, it was only 68%.
While it's nice that volume is calming down to the pre-coronavirus stock market crash levels, higher volume would have been better.
A large positive body with small wicks on both sides made for a good candlestick. The close being higher than the top wick from Tuesday added to the positive look.
The clear expectation was for a move higher.
Thursday, April 23: Downside Reversal
When does being down 0.01% look horrible? When it has a closing range of 12% on higher volume.
Technically, it wasn't a distribution day because the loss was less than 0.2%. But it felt like distribution.
The candlestick made things look even worse: a long wick at the top and a tiny negative body on the bottom. Just like Monday. This left an impression we would be moving lower.
Negative Coronavirus News Killed A Beautiful Day
Thursday started out great with a reasonable gap-up. Many quality CAN SLIM stocks were acting perfectly. So where did this downside reversal and horrible candlestick come from?
At 9:45 a.m. PT negative news came out on a Gilead Sciences (GILD) drug trial in China for remdesivir. The details were limited, but the market shoots first and asks questions later.
The Stock Market Update believes that initial spikes are driven by headline-reading algos. In cases like this, it's best to wait and let the humans dissect and interpret the news.
Friday, April 24: Outside Day
Outside days are a big deal. These reversal patterns can change the short-term direction of the market. We came into Friday assuming we were going to test the 200-day. But that's not what happened.
After people spent the night digesting the coronavirus news on Gilead, we started with a mild and healthy gap-up. Then came the first test, the low from Thursday. Thirty minutes into the trading session, we saw the undercut and the lows for the day.
The rest of the day it just had little mini stairs up. Fifteen minutes before the closing bell, we took out the highs from Thursday.
We passed both tests. One, taking out the lows and the highs from Thursday. Two, up a healthy 1.6% with a 95% closing range.
A large positive body with a mild bottom wick and very little on top, that's a great looking candlestick.
This setup day gives the expectation of moving higher next week.
The Bottom Line: A Handle Is Born
While not always fun, this week's action was extremely healthy. While it's a V-shaped cup, we now have a five-day handle.
Monday's high of 8684 is the high of the handle. We like to see shakeouts and power in handles. We certainly had both.
IBD's Market School considers a market to be living above the 21-day after 10 consecutive lows above the average. Friday marked 13 days; this is very significant.
With the 21-day almost above the 50-day, we are setting up for a Power Trend. More on that in next week's Stock Market Update.
With this week's pause, the coronavirus bull market remains even stronger than it was last week.
Stock Market Update: Keys To The Highway
We are one week into a handle. While we are set up to break out Monday, we could spend a couple more weeks in this trading range and still be very healthy.
What to look for on the downside: Friday's low of 8464, the 200-day at 8413, the 21-day at 8221 and the handle's low of 8215. The last line of defense is the low of the April 6 "Won't Back Down" FTD 7617.
On the upside: 8684 would break us out of this cup with handle. At that point 9000 to 9070 becomes our magnet. We would also look for the 21-day to move above and stay above the 50-day. And the 50-day to turn back to an uptrend.
Tuesday's gap-down and Thursday's midday meltdown on a negative coronavirus headline were reminders we are still on shaky ground with news.
But we are trend-followers, not news-guessers. We never argue with the market.
As always, keep an open mind and stay flexible.
Mike Webster is IBD's Head Market Strategist. You can read previous versions of the Weekend Stock Market Update on Twitter. Follow Mike on Twitter under @mwebster1971. This weekly column was formerly named What Would Webby Do (#WWWD).
YOU MIGHT ALSO LIKE:
Read The Big Picture Every Day To Stay On Top Of The Daily Trend
IBD Long-Term Leaders Portfolio and Watchlist
"Market" - Google News
April 25, 2020 at 10:48PM
https://ift.tt/3cGNSh4
Stock Market Update: Coronavirus Bull Market - Investor's Business Daily
"Market" - Google News
https://ift.tt/2Yge9gs
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
/cloudfront-us-east-1.images.arcpublishing.com/bostonglobe/VNG7YMZTRWJ5WBFTJ5NVETPCQI.jpg)
No comments:
Post a Comment