If we look at the data, this isn’t unexpected.
Remember when I told you I was looking for signs of cracks in the bullish structure of the market, versus identifying a normal pullback? Well, I’m now seeing signs.
You’ll want to read this (especially if you’re one of the many members who have reached out to me concerned about the market the last few days)…
So let me break this down for you — and give you some piece of mind…
These signs come in the form of two technical patterns:
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- The 8/21 exponential moving average cross on the daily charts: This sign is indicative of the fact that the price is falling, and the 8 EMA must cross over the 21 EMA (whereas before, the 8 EMA was on top of the 21 EMA — a bullish pattern) as the EMA is catching up with a falling price. This is a trigger that can be used on multiple time frames, but on the daily, it’s considered a major signal.
- Phoenix is showing the trend shift across indexes and sectors, on time frames larger than the 30 minute charts: A loss in trend alignment on a 15 or 30 minute chart is typically just a pullback. Once this trend alignment bleeds into the 78, 195, and then daily charts, it’s indicative of a larger move. That, coupled with the moving average cross on the daily charts, and a continuation of this downtrend is a confirmation of the ‘crack’ in bullish trend.
Check out Phoenix on the big picture, below:
Do you see the triangle on the last line of IYT in Phoenix, in addition to the 8/21 moving average cross arrow on today’s candle on the chart pattern?
Why am I highlighting this?
The last three out of four times we got an 8/21 moving average cross on the daily chart in the transportation average ETF, it lead to a significant market pullback.
Notice the 8/21 moving average cross on 10/1/18?
This is what ultimately pointed towards the high in the market before the downturn we saw last fall and winter. The next 8/21 moving average cross arrow that appeared on 11/20/18, was initially a fake out, but, price only traded up into resistance at the 100 and 200 simple moving averages (blue and pink lines, respectively) before the final 8/21 moving average cross triggered on 12/7/18 that lead ultimately to the December lows.
It’s all in the charts (and historical data).
Where does that leave us with our Phoenxies?
A typical market pullback in a trending market will last 2-3 days, followed by a typical move higher, seeing your Phoenix stocks catching strength first. If these stocks (MSFT, NFLX, AMZN) are unable to catch a bid, that is further indicative of a larger market pullback.
Grandma Loves It: 30 Minute Chart
As you can see, John Deere (DE) and United Heathcare (UNH), are the first showing signs of life. For this IYT downside trigger to be a fake out, we must see these stocks begin to rise by the end of the day.
If they don’t…
I’ll be on the lookout for a further market pullback next week, potentially to the 2670 level in the SPX. Why? This is the 50 SMA. I’ll also unload my long NFLX and MSFT trades.
As of right now, there’s still a hope for a 12:30 market rally, along with a short squeeze into the end of the day. But, I’m sitting, patiently, watching to see if these stocks catch a bid, or, if the indexes confirm a downside trigger, like IYT has.
So take a deep breath traders… and let’s wait and see what happens.
Thanks Danielle-new to options,but your analysis of the market and option trades is very helpful.
awesome insight Danielle. I was wondering what strikes you had for NFLX butterfly. I assume it was in Apr monthly series.
Looks like almost all the stks in the ‘Grandma Loves It’ list rebounded later in Friday’s session, so it’s a minor pullback as you suggested.