Jeff Clark's Market Minute

Another Big Caution Sign

The bulls keep stepping up at just the right time.

The stock market was selling off pretty hard intraday last Thursday and Friday. But, a final hour rally – on both days – propped the S&P 500 higher and prevented the index from closing below a critical short-term level. 

Take a look at this daily chart of the S&P 500…

The red line on the chart is the 9-day exponential moving average (EMA). It helps define the short-term trend of the stock market. If the S&P 500 is trading above the line, then the trend is bullish. If the index is below the line, the short-term trend is bearish.

As you can see, the trend turned bullish right at the start of 2019. And the index remains above the line today. The S&P 500 did dip below the line intraday last Thursday and Friday. But, on a daily chart, it’s the closing level of the index that matters. And, as I wrote earlier, bulls stepped up at the right time and kept the index in a bullish trend.

So, despite my intermediate- and longer-term concerns for the stock market, I haven’t been willing to get aggressive with bets on the short side.

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Traders just can’t get too bearish as long as the S&P continues to hold above its 9-day EMA.

But, if we dive in a little closer and take a look at a 60-minute chart of the index, we’ll see a good reason to be cautious. Take a look…

This is a 60-minute chart – which plots data points on the chart at the end of every hour. It’s a short-term look of the stock market. And, patterns on this chart tend to play out within about five to seven trading days.

The interesting thing about this chart is how well it defines short-term, tradable trends in the market. For example, each time the S&P 500 crosses its 50-period moving average (MA) (the blue line, which is the 50-hour MA since this is a 60-minute chart), the index tends to make an extended move in the direction of the cross.

Traders would have done quite well over the past three months by simply buying the S&P 500 when it crossed above the 50-period MA on this chart, and then selling that position and going short when the index crossed back below its 50-period MA.

In other words… buy on the blue circles and sell/short on the red circles.

I first showed you this chart two weeks ago when the index was on the verge of breaking down below the blue line. But, buyers stepped up at just the right time and prevented that from happening. The market continued higher.

Notice, though, that the S&P 500 broke below its 50-hour MA last Thursday. And even Friday’s last hour buying heroics couldn’t pop the index back above the line.

This is a really big CAUTION sign. 

I can’t get too bearish until the daily chart of the S&P closes below its 9-day EMA. But, I certainly can’t get bullish when the 60-minute chart looks as it does.

Traders are probably best off just staying cautious right here, and not making big bets in either direction.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, a Delta Report subscriber shares their trading experience…

I consider myself to be an intermediate-level options trader and am on my way to becoming an advanced options trader. I make good money when the market is flat or going up. 

The reason I signed up for your service is because I struggle when the market declines. I know how to place a bear trade; the problem is knowing when to actually do it. I am off to a good start in my first week with one long put trade, so I am looking forward to many profitable bull and bear trades. I understand that nobody wins on every trade and I am good with that. Thank you.

– Robert

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at [email protected].

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