Stock Market Upate: Coronavirus Bull Market - Investor's Business Daily

Welcome back to IBD's weekly Stock Market Update. Our mission is to give you an edge in the market.

X

We start with a day-by-day analysis of the Nasdaq composite in search of hidden clues of accumulation or distribution in the daily price action.

Then we step back and put the puzzle pieces together.

The Stock Market Update never plays the impossible game of predicting the market. Instead we tell you what to expect. Knowing the difference between normal and abnormal market action keeps you in line with the current trend.

Our goal is to keep out of trouble in the bad times and more important to capitalize on uptrends in the stock market.

If this is your first time with us or you are new to candlesticks, please read Stock Market Update: Your User Guide.

Monday, April 27: Cup-With-Handle Breakout

Don't let Monday's small 1.1% gain fool you. This was a decisive breakout.

Stocks have cups with handles all the time but they are less common with indexes.

Breakouts give expectations of higher highs. Therefore the pivot level becomes a key area. A break above and you should trend higher.

The problem? Half of breakouts pull back into the pivot for a final test.

Go too far or too long below it and it's a failed breakout.

Last week's Stock Market Update covered the V-shaped cup with handle created by the coronavirus stock market crash and rally. The April 20 downside reversal started the handle. Its 8684 high became the key resistance level or pivot point.

After Monday's gap-up we just held tight all day. Only 70 basis points separated the high from the low. This tiny range felt like a return to normal.

The resulting candlestick had a tiny positive body with two small wicks.

It was a clean breakout with the low staying above the pivot. The expectation? A continuation of the trend higher.

Tuesday, April 28: Negative Expectation Breaker

The relatively small 1.4% decline hid the horrible action. Simply put, there was nothing good about Tuesday.

A 1.5% gap set a high bar. By 8 a.m. PT, the Nasdaq had fallen more than 2% from its highs, slicing through all levels of support and taking out Monday's full trading range and the key pivot level at 8684.

There was a pathetic midday rally attempt that quickly failed, and we closed at fresh lows for the day.

The candle's huge negative body completely engulfed Monday's tiny body. Tuesday's range was 2.6% compared with only 0.7% on Monday. So much for a return to normal.

The high and low being wider than Monday's made this an outside day. As discussed in previous Stock Market Updates, negative outside days give clear expectations of further weakness.

All of this just one day after the breakout created a negative expectation breaker.

Was this a return to the erratic Costanza opposite behavior during the heart of the coronavirus stock market crash?

Wednesday, April 29: Positive Expectation Breaker

Another expectation breaker, but a good one this time.

While the Stock Market Update welcomes strong powerful up days, it prefers fewer expectation breakers. A healthy market trends in a relatively predictable fashion.

Since the April 6, Tom Petty "Won't Back Down" FTD, volatility has shown some signs of returning to normal. Mix the peak of earning season with daily coronavirus news, and the unpredictable action returned.

The 3.5% increase and 77% closing range in higher volume than the prior day is what IBD's Market School calls an Accumulation Day. These are essentially follow-through days more than 25 days after the rally day.

After the 2% gap, the Nasdaq climbed the rest of the day. The resulting candle? A large positive body and relatively small wicks on both ends, leaving clear positive expectations.

Thursday, April 30: An Inside Day

Down just 0.2% with a 63% closing range in less volume. An ideal way to mark time.

The high and the low being within the prior day's range is called an inside day. These are always welcome as they are a healthy way for the market to digest a move.

The tight 1.1% range felt like a return to the pre-coronavirus stock market crash volatility.

The tiny wick on top and a very long wick on the bottom made the candle look constructive. The only problem was the negative body.

Because there was no new price discovery, your expectation from the prior day remains in place.

Friday, May 1: Below The Line

Negative reactions to key earnings caused a 2.2% gap-down to 8681.

The level was no coincidence. It was right at the 8684 pivot of the V-shaped cup with handle.

This pivot point level became the battleground. How much ammo would the bulls spend defending this line in the sand?

The answer? Not enough. By 8:20 a.m. PT, the line was undercut and down we went.

We ended down 3.2% with a 20% closing range. Somehow the volume managed to decline. Volume has been doing strange things lately, but that's a topic for a future Stock Market Update.

A negative body was shortened because of the gap-down. The empty space above the long top wick made for a scary-looking candlestick.

Just like Tuesday, there was nothing good about Friday.

Take A Step Back: Is This Really 3-Weeks Tight?

The Stock Market Update focuses on the day-by-day details. But stepping back and looking at the bigger picture on weekly and monthly charts puts everything into focus.

Even though we have witnessed so much day-to-day volatility, we have closed nearly unchanged for three straight weeks: down 0.3% this week and just 0.1% last week.

The three-weeks-tight pattern is a key sign of accumulation in stocks. And just like cups with handles, you can use three-weeks-tight for indexes. The only negative was the 9% closing range for this week.

Notice that two weeks before the Nasdaq resumed its plunge, the index held tight near this level too. The weeks of Feb. 28 and March 6 both closed near 8570. This is right near our current 8604.

What does this mean? This is the current equilibrium level. After 12 weeks of battle since the February peak, this is where we stand. It will either be a very strong ceiling or a very strong floor.

Stock Market Update: Moving Averages

Focusing on moving averages can reduce the noise.

We've made the candles faint to make it easier to focus on the averages.

The 21-day is the key moving average. We have been above the 21-day since the "Won't Back Down" FTD on April 6. More important, the daily lows have remained well above it too. This is huge.

When we test the 21-day, which could be soon, look for a quick bounce. It would be a very bad sign if the Nasdaq breaks it and the high is under the 21-day line.

The 50-day is still in a clear downtrend. That is the final missing piece before we can start what IBD's Market School calls a Power Trend. More on that in future Stock Market Updates.

The 200-day remains a key support level. It's constructive that the 21-day is almost above the 200-day. Early last week it was able to cross the 50-day.

A healthy-trending market will have all three in solid uptrends. The 21-day above the 50-day and the 50-day above the 200-day. This will take time.

The Bottom Line: The Breakout Failed

Heavy earnings weeks are always volatile. Drop one in the middle of a ton of coronavirus news and last week happens.

Yes, the cup-with-handle breakout failed. But we are less than 1% away from the pivot That's not ideal but not horrible.

If we stay above the 8300 level, the general uptrend line from the March 23 bottom will remain intact.

Until we have clarity on how and when the economy will reopen, more volatility seems inevitable.

Stock Market Update: Keys To The Highway

What to look for on the downside: The first key battleground is 8245. This is where both the 21-day and 200-day are sitting.

If the bulls lose, then the battle drops to a wider level, 8200 to 8300. This includes the general lower channel line near 8300, the Machines vs. Machines day low of 8215 and the high on April 13 at 8200. That was the day before the big gap-up above the 200-day.

On the upside: First things first, retake the handle at 8684. Then Monday's breakout high of 8754.

Then 9000 returns as the key magnet. On Wednesday we reached 8957. Watch how the Nasdaq acts when it gets close to it.

A short-term upper channel line can be drawn connecting the highs from March 26 and April 14. Because it is so steep it can only be used as a short-term trend line. If strength returns, staying within that area would be very constructive.

Ideally a reduction in volatility and marking time between 8500 and 8800 would be perfect action.

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:

This Long-Term Leader Is Near A Buy Point

Read The Big Picture Every Day To Stay On Top Of The Daily Trend

How To Grade Your Stocks

IBD Long-Term Leaders Portfolio and Watchlist

Let's block ads! (Why?)

"Market" - Google News
May 02, 2020 at 11:42PM
https://ift.tt/3dfzNHX

Stock Market Upate: 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