Is the Market About to Sink or Soar? These Are the Levels to Watch
May saw the sharpest pullback in the SPX this year.
June has recorded the best performance in the popular averages since 1938.
Following the persistence of trend in 2017 which was the longest stretch without as much as a 3% setback, we have been getting a mean reversion trade in the market since the January 2018 Euphoria Top. The market has produced several inverse V Tops and V Bottoms.
May’s sharp drop and June's equally sharp rebound have been punctuated by this week's alternating up and down days — especially in many of the leading growth titles.
COUP is a good example of the chop:
Down 6 points on Tuesday. Then back up 6 Wednesday morning before giving back all the gains and then some. Then it ripped back up 9 points on Thursday.
Boy, the fundamentals sure do change fast at COUP.
The last week has been marked by selling into rallies in the glamours such as TWLO and SHOP — until yesterday.
You can’t blame money managers for trimming going into quarter-end following an air pocket in May.
But yesterday and this morning, mark-up mania is back in full bloom.
BBIO and ADPT ‘s stunning debuts yesterday, along with a continued rebound in the chips on the heels of MU’s earnings this week, sparked animal spirits on Thursday hat spread throughout the tape.
Bio-pharma names already in strong uptrends, such as QTRX, RARX, VYGR, ODT and AXSM, led the parade.
Subscribers were well positioned for the rip in AXSM, having taken it long on Tuesday anticipating a pivot out of a pretty Cup & Handle pattern.
Wednesday’s drop in AXSM in league with this weeks cuisinart market looked like a failure was brewing, but our stop didn’t get hit. However, the shakeout shook out weak hands creating blue sky — ease of movement higher — when AXSM turned up yesterday, successfully pivoting out of the Handle.
The pattern sets up the promise of continuation for 3 reasons:
1) Being one of the strongest names this year, AXSM should benefit from further quarter-end window dressing today.
2) Tuesday’s long set-up was backstopped by multiple signals we use: a 1 2 3 Pullback/180 pattern which is a 3 day pullback with a close on day 3 near session highs versus a close on day 2 near session lows, a Holy Grail signal which is a pullback to the rising 20 day moving average, and of course the aforesaid Cup & Handle pattern.
3) AXSM is coming out of a pullback toward its 50 day moving average. The last time AXSM pivoted out of a consolidation toward its 50 day moving average in March, it generated a multi-week run. Of course that was weeks ahead of the end of Q1. And yesterday’s ramp was 2 days ahead of the end of Q2 ,so it will be important to see if ASXM sees continued momentum in early July or profit taking.
Pulling back the lens to check a weekly AXSM from its IPO shows 3 cornerstones I use for identifying explosive moves.
1) Range/momentum precedes price. The Momentum Gap in early January was a launching pad that has provided the fuel for a rocket higher.
2) Markets play out in 3’s. The Momentum Gap in early January coincided with a breakout over a 3 point weekly trendline. This is what I call a Rule of 4 Breakout. The 4th time through typically sees follow through. Because the Rule of 4 buy was on a weekly basis, it underscored the power of the lift-off.
3) Fast moves follow false moves. Notice the Bear Trap or undercut of a nearly 1 year triangle formation prior to the uptrust in January. This is a strategy I created called a Triangle Pendulum. When an item breaks one way through a triangle and then jack-knifes through the other side of the triangle. it can be a powerful reversal signal. The fact that the breakout through the top of the triangle occurred on a huge gap launched AXSM into the stratosphere… literally. Not all breakouts are created equal. This is how I put the pieces together to identify a stellar position opportunity over months versus a swing trade of 1 to 5 days.
Such was the case with our gold miner purchases in May, including long call options on GLD which we bought for around $1 and kicked out the last piece near $9 this week.
We bought GDXJ, the junior gold miners index, as it triggered a Rule of 4 Breakout of its own in late May selling half for a 5 pt gain this week. We are up over 6 points on the back half on what promises to be a long-term position.
This is our method, be it on swing trades or position trades — to take profits on half and see what the market gives us on the balance.
Amongst other precious metal miner positions from May, subscribers also took AG, a silver miner, long at 5.90 selling, half for a $2 gain this week.
Conclusion. The SPX turned up on Thursday following a turndown in its 3 Day Chart on Wednesday flagged in this space in a chart from yesterday morning’s report.
It’s Osak-it-to-me time with Trump and Xi.
Will it be a Laugh In for the bulls or a Crying Game for the bears?
A turn up on the Daily Swing Chart on the SPX on trade over Thursday’s high that fizzles out in coming hours/days sets up a Hook, Line & Sinker sell pattern…. a false hook up, a ‘line’ down followed by a sinker, a sharp drop lower on another failed flirtation with the 3000 SPX level of lore.
Alternatively, follow-through in the new quarter sets up the promise for a spike to our long outstanding SPX 3000 projection, 144 Fibonacci months from the primary high in July 2007.
Position in AXSM, VYGR, SHOP, SPY puts
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