Spinning Top Chaos
Most stocks and ETFs are deeply oversold and ripe for a bounce, but a bounce remains elusive. And timing such a bounce is a game for short-term traders who can watch the market intraday. This is the kind of volatility that chews up traders and spits them out. I updated the ChartBook, Ranking Tables and ChartList, but today’s commentary will be short because the knives are falling and the blades are still pointing down. Most ETFs are in a freefall.
The chart below shows SPY with candlesticks in the top window and close-only prices in the lower window. There is not much to like on the close-only chart. The candlestick chart offers “hope” with the Meeting Lines candlestick pattern and bounce, as well as the Inverted Hammers and bounces. However, one would have to buy and sell on the closes to profit on these bounces.
The inset shows the hammer from March 13th, which formed right after an inverted hammer. The open was significantly higher, but prices dipped sharply during the day and the close was above the open. Trader’s would have had to book profits on the close because SPY gapped sharply lower the next day.
A spinning top formed on Wednesday and this shows indecision. Normally, indecision can foreshadow a reversal. But are we in normal times? The high and low show a wide range during the day, while the small body in the middle shows little movement from open to close. The bear were in control prior to this candlestick, and the spinning top represents a sudden standoff.
Speaking of spinning tops, the weekly chart sports three in a row so far. SPY opened sharply lower the last three Mondays. Price action was chaotic during the week, but SPY managed to close near the open by Friday. Prices still moved lower for the week though. Think I’ll pour a double.
TLT Turns Negative since SPY Peak
With a big decline on Wednesday, the 20-day Rate-of-Change turned negative for the 20+ Yr Treasury Bond ETF (TLT). This means TLT is also negative since the S&P 500 SPDR peaked on February 19th. Even though the 7-10 Yr Treasury Bond ETF (IEF) is still positive with a 2% gain over the last 20 days, price action in the bond market is hardly encouraging. TLT is still above its rising 200-day SMA, but we are seeing strong selling pressure as the ETF moved lower after the open in six of the last eight days (long black candlesticks).
Roller Coaster at Some Point
I cannot predict the news flow or the path of the coronavirus, but I think we should prepare for a news-flow roller coaster over the coming weeks. This also means we can expect a market roller coaster with some big swings. Possible news over the next few weeks:
- Infections and deaths increase dramatically (negative)
- Infection rates slow (positive)
- Crime increases as economic recession hits (negative)
- Announcement of promising vaccine (positive)
- Hospitals overflow (negative)
- Announcement of promising treatment (positive)
- New infection hot spots appear (negative)
- Fiscal response and bailouts (positive)
- Bankruptcies and dividend cuts (negative)
- National lockdowns in US and UK (not sure)
ETFs Ranked by WASS
Note that the ETF ranking tables at the top are separate from this commentary. The ranking tables are designed to help with trend-momentum strategies, while the analysis below is based on price structure, setups, chart patterns and pattern breaks. Click here for a detailed article and video explaining the Weighted Average Stochastic Score (WASS) and how it can be used for a rotation strategy.