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PUBLIC: Support holding as noted in prior public post

First off, I apologize for the “busyness” of this picture/chart, but there is so much to cover!

To get you up to speed, I would encourage you to read the last PUBLIC post regarding support and why I felt this area would provide a buying opportunity for nimble traders that had some cash available and wanted to enter the market.  That post can be found HERE and today’s post will make much more sense if you read it first, trust me.

Okay, now that you have read that post.  Notice that the very next day, March 21st, we had a major selloff into the support zone discussed.  In the comments section of that post, I showed in real time where I purchased the market near the horizontal white line on this chart.

After Wednesday’s follow through to the downside was muted, and Friday held the same level and bounced, I added the green line of support to the chart.  That Friday is noted by the first green arrow on the left and also shows how the 50-day simple moving average provided support for the market (as it almost always does on the first touch).

Monday March 27th (yellow arrow) saw a sell off that pierced the support (50-day moving average [white dashed line], 2016 lower uptrend line that ignored the election [red line]) noted but found support at a Fibonacci level near 231.60 SPY.  The day opened very low, but was used as a buying opportunity by most as the market climbed all day and finished the day back above the red line, above the 50-day moving average, and back above the prior low’s marked by the green line.

The next two green arrows indicate days where price during the trading day as touched the 50-day moving average and bounced.  March 28th and April 3rd.  My previous PUBLIC post said price was nearing support, and support has held so far.

Looking at the highs from March 1st, we have made a low, bounced to a lower high than the March 1st high.  Those lows and highs are marked by the start of the downsloping white trendlines.  The yellow arrow marks a lower low made on March 27th.  Near the red arrow, you can see that price has potentially made a lower high again on March 31st.  Basic technical analysis of the stock market defines an uptrend as a series of higher highs and higher lows.  The definition of a downtrend is lower highs and lower lows.  Making a lower low than the March 27th low would lock in that scenario until a higher high was made again.

Dr. J’s Thoughts:

  • Breaking the March 31st highs would be the first sign that the budding downtrend is failing and nimble traders may want to join the breakout trade with a BUY signal.  Caveat:  if price trades back below the upper falling white trendline on a daily closing basis, consider your BUY in danger and likely should be reconsidered.
  • Achieving a daily close below the 50-day moving average (dashed white line) should be a cautionary sign that the budding downtrend is gaining momentum and support might get overwhelmed.  I am 99.9% sure I will sell my recent purchase of SPY if this should occur.  I have been setting stops daily on this position based upon other criteria too technical to share in this blog, but if a sale hasn’t already occurred prior to this event, closing under the 50-day would be a very, very strong signal for me to return to cash looking for a better opportunity to enter the market.
  • I have a trading Mentor whose mantra is:  “Nothing bad happens when price is above a rising 50-day moving average.”  Well, as of this writing, price is above a rising 50-day moving average.  Until that changes, maintain your upside bias in the market.

  1. Anonymous
    Anonymous April 6, 2017

    Here are two comments posted on 4/6 and 4/9 (which I did not approve and wanted to moderate them to protect the poster as well as I was attending a seminar from Thursday through Saturday and was too busy to respond…now I have time, so I’m approving and responding)…read on!

    Hi Dr J,
    Are we reaching the point where we need to take retirement funds to the sidelines and wait for the next uptrend?
    Thanks,
    Anon

    Hi Dr J,
    I was just looking at my previous post and was hit between the eyes by the fact that my comments were a perfect example of emotional overload masquerading as rational thought. Your rational approach to market volatility is greatly appreciated so I’m chalking my previous post up to a learning experience.
    Thans,
    Anon

    • Dr. J
      Dr. J April 9, 2017

      Dear Anon,
      In my recent posts, I have tried to point out the “irrational exuberance” of the stock market since the election of Donald Trump culminating in a close above the monthly Bollinger Band. I expressed concern and caution, and while we are not yet “ON ALERT,” it would not have surprised me to see a close of March below that level. I also pointed out where support in this market should be found, and so far, it looks like we’ve found it in that area.

      So, should you sell everything and run for the hills? Nope. Not according to the Market Alert system. However, as my post said, if you are fully invested, taking a small amount off the table at this time to deploy when a “real” Buy-the-dip moment occurs or a breakout occurs would make a lot of sense.

      I’m glad you saw the “emotion” in your comment and realized it. Long term money deserves long term thinking. At this exact moment, there are NO signs of impending disaster in the stock market….however, the 50-day moving average is directly below price so a continued drop is going to violate that important line and with it, a lot of the support I have been writing about is going to go “POOF.” Hence, my more conservative approach to make sure there is some cash in your portfolio if there wasn’t any and deploy it at a more opportune time.

      Keep asking questions and posting comments, this is how we all learn!

  2. Dr. J
    Dr. J April 5, 2017

    Stop hit on the SPY purchase today during the afternoon carnage. Looks like we got the fake out, not the break out.

  3. Dr. J
    Dr. J April 5, 2017

    Well, that is TWO very timely blog posts in a row! We broke above the white line and have fallen back on 4/5 in the morning to retest the breakout. It is break out or fake out time in the market. Either we push above today’s high and continue to 2390 and possibly new all time highs, or we fall back below the white trendline and it was just a big fake out trapping traders on the wrong side of the trade. Be nimble and observe what the market is telling you!

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