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The Usual Suspects Bounce


“I picked up my bag, I went lookin’ for a place to hide

When I saw Carmen and the Devil walkin’ side by side

I said, hey, Carmen, cone on let’s go downtown

She said, ‘I gotta go, but my friend can stick around.'” – The Weight, The Band

“I fear not the man that has practiced 10,000 kicks once, but I fear the man that has practiced one kick 10,000 times.” – Bruce Lee

Wednesday’s sharp sell-off produced some early follow through in the markets with the SPX striking a first half-hour low.

Near-term oversold markets produced flat, quiet trade in the SPX, which cracked the door open to a continuation of quarter-end conga line mark-up of glamours.

They were the usual suspects:

AVLR, which didn’t get the call about Wednesday’s market downdraft.

COUP, which saw its first daily turndown on Wednesday since coming out with authority on June 15.

FVRR, which also didn’t get the call about Wednesday’s plunge and reversed up off its 50 day line, allowing us to capitalize on its Holy Grail/mini Cup & Handle setup on Thursday.

DOCU, which shrugged off Wednesday’s Key Reversal Day… for the moment.

FSLY, which left a Lizard Topping Tail on Tuesday and followed through initially on Wednesday, but reversed sharply to the topside after scoring its first daily turndown since coming out decisively on June 15

To mention a few.

Bookending the bids in tech was the quarter-end hit parade in biotech.

Names include:








Be that as it may, Thursday’s sell-off left a distribution dent in many of the leading names, including AAPL, and it will be important to gauge their complexion in the new quarter.

Wednesday’s plunge in the NAZ following Tuesday’s Lizard Topping Tail underscores the tug of war between distribution and quarter-end markup.

That said, Thursday’s bounce in the NAZ, which is home to many of the aforesaid winners was logical:

The NAZ fully tested its 20 day moving average on Thursday morning and bounced after going into our Plus One/Minus Two buy position.

So Thursday morning carved out a dual buy setup in the NAZ: a Holy Grail (test of the rising 20 dma in tandem with 2 consecutive lower daily lows while the 3 Day Chart is pointing up (Plus One/Minus Two).

However, this is where the rubber meets the road.

The leading NAZ bounced, but has its work cut out for it going into quarter-end window dressing.

It must contend with Wednesday’s outsized distribution day and Tuesday’s Island Reversal Top.

So there is a technical tug of war on the table mirroring the Quarter End Poker Playbook buying and selling described in this space earlier this week.

Lest there be any doubt that the SPX benchmark is in a near term downtrend, consider that the index has not been able to carve out 2 consecutive higher daily highs since its recovery high on June 8.

Remember trend is not price, trend is persistency. Price is not truth, momentum and persistency are the Truth of the Tape.

You can look at any one bar or any closing rally and assume the trend is up, but when you have a method, you can measure the Line of Least Resistance.

That SPX line fractured.

The SPX interim trend is down and surprises happen in the direction of the trend.

That the NAZ struck a new all-time high with the SPX pulling back from a meaningfully lower high is a divergence to be mindful of.

Conclusion. Yesterday we noted that June 25/26 is square a price of 3050 and conjunct a price of 3107.

The SPX oscillated in quiet trade around 3050 all day followed by a Late Day Breakout which may perpetuate a test of 3100 and the 310 SPY strike on this weekly option expiration.

I think the SPX is tracing out a short term triangle and, as tweeted yesterday, a push down followed by a rally could complete the D and E waves of this triangle.

Triangles are treacherous, so we need to be nimble by definition.

However, keep in mind that the greater probabilities still point to levels at least below 3000 and perhaps much lower… even if this bounce has more room.

Strategy. Many of the usual suspects bounced after taking a right hook to the jaw on Wednesday.

A few of the growth glamours look set for continuation today.

These include OKTA, which we took yesterday, coming out of a mini Cup & Handle with authority leaving a large range outside up day (LROD) off its 20 day moving average.

ZS left a 180 Bull Flag buy set up and clearing Wednesday’s outside down day will trigger a Reversal of a Reversal continuation buy signal arguing for pin action to 115.

LVGO is in the Plus One/Minus Two buy position.

The bottom line going into quarter-end when it comes to playing runaway names is that runaways moves have a different character and complexion.

They seldom inhale. When they do, it is sharp and short.

In my experience, many traders like to short them for a variety of reasons:

Their funnymentals don’t justify their runs. Of course, that’s why they are called funnymentals.

Many a trader has been carried out horizontally because they think that there is more “juice” in shorting a high flyer.

That may be true as we know that price is mean reverting.

But don’t tell me “why,” tell me when.

Timing isn’t just everything. It’s everything.

In my experience, I have noticed that oftentimes traders want to short a high flyer because they missed its move. This is Vengeance Trading.

And it is lethal.

The other sacrosanct rule I have (in addition to Follow Through Is Key) is it’s ok to guess wrong, it’s a sin to stay wrong.

Your goal is to practice the same kick, the same process of taking setups and let where the stock is going take care of itself.

This is why my Hit & Run Swing Method revolves around trimming half and letting the other piece play out.

Traders like to second guess. When they sell half and the stock goes higher, they second guess.

When they sell half and the stock goes lower, they beat themselves up over not selling all of it.

The only way to win psychologically is to follow the same process.

Speculation is observation; thinking isn’t necessary and often just gets us into trouble.

Everyone likes targets. It alleviates the tension of a trade.

You want to alleviate tension? Concentrate on the process of taking setups.

Deal with the reality of the setup, more than mere projections.

Follow the same process.

Be Bruce Lee.

“The public… demands certainties; it must be told definitely…

That is true and that is false! But there are no certainties.” – H. L. Mencken

“… And and and you put the load right on me.”


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