My objective with this daily commentary is to give you trade opportunities, and keep you on the right side of the market’s significant trends.
Right now the market has two conditions that could lead to big move.
The first and least predictable condition is earnings season.
The market is headed into earnings season which means that over the next six weeks the market is susceptible to a sudden change in sentiment amongst the biggest market players.
As a result, if the market starts to trend during this time, the move can provide great swing trades.
Predicting the direction of any such move, however, requires looking at the charts, not any earnings data that we have access to before companies announce their earnings.
The current condition of the market’s chart is the second reason that a big move is likely to happen soon.
The SPY and QQQ have been consolidating for the last 4-5 days. This pattern alone could lead to a big move in the direction that the market breaks out.
In addition to the consolidation pattern, the SPY and QQQ are sitting at pivotal price levels (as I’ve covered in a recent post), and right below their 50-day moving averages.
If the SPY and QQQ close outside of their 5-day range look for a significant move in that direction.
As a trade, you could be a buyer if the trend moves higher with a stop under the low of the breakout day. If the break is lower then, you can do the opposite – short with stop over the break down day.
However, also look out for the “Fake Out” failed breakout pattern. If these ETFs close outside of their range, and the following day reverse back into the range watch out for the significant move to be in the opposite direction of the failed breakout.
Both a breakout, and a failed breakout can provide you with great trend trade opportunities. You don’t need to wait for the market to make its move to find great trades, however.
Some of the best trades occur ahead of the market’s move, and if you’re in early, the market’s move gives your trade a big boost.
Tomorrow, I’ll be covering one of the FANG stocks that is set up nicely for a bullish trade before a bullish market breakout or after a failed market breakdown
If you’re a regular reader of this column, you can probably guess which one I’ll be covering tomorrow.
Rick Nartarian, Chief Investment Officer
The American Investor Daily