This Is One Of My Favorite Barometers Of Market Internals
Dave Floyd is a professional FX and stock trader based in Bend, OR and the
President of Aspen Trading Group. Dave’s approach to FX combines technical
and fundamental analysis that results in trades that fall into the swing
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The fact that the market flirted with the 50-day
EMA all morning is no surprise to anyone with a rudimentary understanding of
technical analysis. What was less obvious based solely on that indicator is
which way the S&P’s would break – above or below the 1220 level.
As of 8:45 AM PDT the market has given way and
the 50-day EMA is now resistance, however, if you were watching even the most
basic of ‘hot stock’ lists available on most charting/quote platforms, you could
have drawn some conclusions as to the internal “strength” or “weakness” in this
case by performing basic fib analysis on that basket of stocks.
One of our favorite barometers of market
internals is to monitor Fibonacci retracement levels (Fib Gauge) on our Top 20
Long/Short HVT Stocks as the day unfolds. Each morning we continually rank the
best 20 long and 20 short candidates for HVT set-ups and then also track where
they are in terms of their fib retracements for the days range. Naturally on a
day where we expect to see higher levels in the overall market (S&P futures) we
want to watch for stocks that do not dip below a 25-37% of their days range
during periods of S&P weakness – this is a solid sign that the stocks is
‘stronger’ than the overall market. The converse of this applies to weak
markets as well. Today was where the later was the case.
The steel stocks, specifically X and
(
NUE |
Quote |
Chart |
News |
PowerRating),
opened strong this AM, but quickly fizzled out dropping below the opening gap
price – this alone is a bearish sign – however, during the brief run in the
S&P’s off the 50-day EMA X and NUE maintained Fib readings of less than 37 –
meaning that they were never able to rally more that 37% off the day lows,
despite the market moving higher. Given that the move in the S&P’s was a
counter-trend move and likely to lose steam – stocks that are weaker in the
rally are the ones most likely to fall quicker when the market resumes its
downtrend.
U.S. Steel
(
X |
Quote |
Chart |
News |
PowerRating)
offered two solid trade set-ups that were very simple in terms of their
technical set-ups – but that combined with its’ relative weakness as highlighted
by the Fib Gauge offered great gains on the short side. We illustrate the
bigger picture on X with a 15-min chart but then use these levels and apply them
to the standard HVT set-up on a 1 and 5-minute chart.
When these levels are monitored on the 5-min
chart they offer up two very solid HVT shorts.
Meanwhile, during this whole sell-off in X and
the S&P’s
(
QLGC |
Quote |
Chart |
News |
PowerRating) maintained a fib reading range of 85-90, meaning it was
less than a 15% retracement off the days high despite a weaker market. While
the market may never resume an upward thrust, QLGC was worth watching.
As always, feel free to send me your comments and
questions.
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