Short update on what we are looking at this week across several markets and a look back on our trades of the week.
Do not forget to tune into our show today (Monday 4pm Est) and feel free to call in. I see a lot of people trading penny stocks and normally we stay away from this market, but we are looking at a Biotech penny stock that could be a winner winner later in 2020.
Last week’s swing pushed into the initial resistance area (8000-8500) and the key support area is 7650-7750. We want to see a close on the weekly above this support area. Though it might push below that in the shorter term, as long as it takes back the 7750 area the probabilities favor a swing higher.
The key level to take out is 8500 which was the upper end of the range of resistance. A push through this area should push us into the next area of resistance between 9300 and 10,500. We are looking for the upper end of this range over the next two to three weeks.
Taking out the 10,500 level should open the path up for a swing into the 14k’s.
Broader support is still at 6000. If and only if 6000 is broken would we consider that this may be a part of a broader correction stemming back to 2017. Technically Bitcoin can retest 3200 and still be part of a broader bullish swing, but the structure would be more of a corrective type.
As we told our members earlier this week, we would not be shocked to see a retest of the 7650-7750 area before the next swing higher evolves. Not uncommon for equities to retest their former support / resistance levels before a new interim high.
What I like about this chart is the current strength of the move pertaining to the proportional levels using Fibonacci. I know I have said it at least a million times, but these are not magical levels, they provide additional information via proportions.
What do we like about the proportions of the move:
- The pullback on the 8th found support and buying pressure at the 50% retrace level.
- It immediately pushed back and is consolidating around the 50-75% retrace of the bearish swing.
Strong equities generally find buyers on a pullback of 25-50% of the impulse swing. The fact it was quickly bought up and we have a consolidation near the upper end of the engulfing candle (outside bar) is another sign of strength.
To boot this is happening at the prior resistance area where we expected to see sell side pressure and instead we are getting buyers continuing to step in. This sets up nicely for a lingering breakout.
The longer we linger, attempting to push through resistance, the more likely it does. May take a couple few days, but if we get a couple more daily candles above 8000, the probabilities of a strong swing higher increases.
Do not be surprised to see a push back into the support area, that ranges between 7400-7700. The higher probability swing trade would be out of this area on a bullish reversal signal. Continuation trades are tricky because often they fake-out longs, so depending on the trade setup we get will dictate our position sizing.
Need a couple more candles before making a decision, which implies we may miss an opportunity to go long here. The risk in getting in too early is you get stopped out and then the move happens.
With our current trade we have hit our initial two target levels, so we are essentially in a free trade. This trade was issued back on Dec 21st and we sat through a lot of noise, but this is part of being a patient trader.
Last week our trade of the week was the Kiwi or New Zealand Dollar. It never triggered and pulled back to where our stop was placed. I would not be shorting the Kiwi here, and actually would be looking for a long, however we are already in a Forex trade with the British Pound so we are not going to add additional risk.
Regardless of who you get your trades from they should be clear and you do not get trigger happy. Had you just taken the trade here on the setup, but not placed a proper trigger level, you were stopped out.
Triggers help reduce the number of trades that do not work out. Having a properly placed trigger kept us from losing and when we saw a setup on the Pound we decided to take that in lieu of the Kiwi.
So for transparency purposes we are short the Pound here.
One reason I like the Kiwi long is a global turn in the economy. If we get additional progress on a trade deal, along with an improving European economy it should bode well for the Aussie and Kiwi.
China is their largest trading partners and an improving economy will bode well for exporters to China of which both Australia and New Zealand are key exporters.
New Zealand Dollar (Kiwi)
Two weeks ago Bitcoin Cash was our trade of the week. The trigger was 220 and our first target was hit at 260. As mentioned in the previous article this is a position trade which may take a month or more to play out.
So far we like the structure of the impulse swing and would not be surprised to see a pullback into the 230-245 area. It is important to remove risk especially at the initial target. This provides a more comfortable trade and frees up capital to re-enter if we do get a pullback to retest the lower 200’s.
Regardless other than one other alt coin, this is the strongest chart of the majors.
If you missed the trade it is important to be patient here as you want to trade the right setup not every setup. Need to see how the week plays out, and we can look at the daily for a possible swing trade, but we prefer to stick with Bitcoin for shorter term trades.
Most of the S&P is being pushed higher because of the FAANG type stocks. Apple, MSFT, Google, Amazon and Facebook make up a significant percentage of the index. In fact the top 10 stocks out of 505 account for 22.7% of the index.
The candle on Friday may be an initial sign that the market is attempting to top. Still too early to go short, but there are a couple levels we will be looking at the open tomorrow for shorter term trading strategies.
Price above 3278 after the open, would be bullish where a move below 3262 would be bearish. Not going to put to much stock in Sunday night traders, as this can often be deceiving. Normally we wait until later Monday afternoon or Tuesday to take trades.
We do not mind taking long trades here, but we want to minimize our exposure as we have not had a significant pullback since October and the market is up 16% since then. Just too far too fast and we need to see a healthy pullback.
Unless 3250 is taken out we still maintain our target of 3300-3325. So what can take us there, looks a little toppish here.
Entering the earnings season, we may see one more push higher as we are likely to get some talk of how the trade deal will improve margins and revenue growth. The downside risk is this has already been priced into the market and the reaction of traders may push right into selling pressure.
In addition the election primaries kick off in February. The outcome of these primaries may have an effect on the market.
Again we do not mind adding and or taking a long trade, but we also want to insure we have the capital to take advantage of any pullback.