Extreme Narrowness!

A very narrow range session was traded on Monday. This puts us in volatility contraction mode. Volatility is mean reverting, and therefore we should be watching for range expansion as early as Tuesday.

I'm still watching for a pullback based on the VIX and overboughtness of the market, but that doesn't mean we can't jsut shoot straight up from here. If we do, I'll miss it as I'm waiting for a "safer" entry.

tiny

tinymjs at gmail dot com

The VIX Is saying stay away from the long side

Based on Friday's close, the $VIX is saying stay away from long side exposure for the time being. The $VIX is now in a position that has historically corresponded with a correction being imminent. This doesn't mean it has to happen Monday, but I'm going to be watching very carefully here.

tiny

tinymjs at gmail dot com

FDX

FDX showing a pause after upside extension. Possible aggressive short on a break of the Friday lows (after 10AM), target is the purple line (last breakout level).

tiny

tinymjs at gmail dot com

3 with poor relative strength

SPY analysis

The SPY put in three upside sessions in a row to end last week, but as the volume panel shows, each day came with decreasing volume. While normally this would be a major concern for the Bulls, keep in mind that using a weekly view, we can see that volume actually increased (not hard to do relative to last week since it was only 3 1/2 days) too the best level since August (see below).

So now what? The Bulls appear to be in control for the time being, and we should be watching for another push up here. the best case scenario is a minor pullback or consolidation to get on board, as testing the yearly highs comes with some short term exhaustion and overboughtness (I should patent that word!).

Bottom line: I will remain in day-trade mode for the time being, but will look to get on board for a swing on the long side once a pattern sets up. Will this keep me completely safe? Of course not, there is always risk involved, that is why there is the potential for good reward.

If I am wrong, make a list of stocks that are under performing the market right now. If we decide to drop, these stocks will likely make the best short side candidates. And duh, do not use inverse ETFs. I will post some charts of the weaker stocks in the next few updates.

Have a great trading week!

tiny

tinymjs at gmail dot com

GOOG

GOOG could be setting up for a nice short side trade. After a nice high volume down day, the stock has limped up and formed narrow range candles the past two sessions. the stock is still trading above the 200 day moving average, which demands respect, but it can be watched for an aggressive entry, with good risk reward, as seen by the first two downside targets mapped out.

tiny

tinymjs at gmail dot com

NFLX

One of the strongest stocks this year is movie rental juggernaut NFLX. On Wednesday, the stock completed a Dark Cloud Cover Japanese Candlestick pattern. While the stock is overbought and stretched from its 10 day moving average, the uptrend is very strong, and any short past a trade needs to be monitored extra carefully. It may set up as a nice long side entry after a rest.

tiny

tinymjs at gmail dot com