Ep 161: Technical Analysis – Reviewing the Current Stock Market

November 16th, 2017

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Today, what I'd like to do is go in detail and some charts. Take a look at some of the recent pullback, some sell-offs that we had, and also today's recent bounce.

First things first, what I'd like to do is take a look at what's been going on.

SPY

If we look at the SPY here, this is the main one. A lot of traders watch a 255 level, kind of the initial key, but really what I'm watching is more around the 256 level, now we've had a couple of spikes.

We take a look at the volume of some bearish signs. Markets don't go straight up, and they don't go straight down - they wiggle, they pop, they retrace, they pull back. All these things are a bit of consolidation for you to be able to go into higher prices if those things unfold.

A couple of things that are normal to watch:

  • you want light or volume, so this is what you usually would like to see on pullbacks
  • when you look at that means you still have more room for the upside

What is interesting recently is we've had a little bit of a stronger pullback. So we've had some stronger volume signs on those pullbacks, and because of this, this is where the volatility spikes. The volatility will spike when you have more sell-offs because volatility spikes when you go down because that's the speed volatility is about. The speed or the fear in the marketplace, in other words, the number of puts that are being sold and bought.

When we look here, mainly the market was a little bit toppy, and we've had a few kinds of interesting dynamics here. I'll show you in a second we've had this support level that was created, and right here it broke below that.

Every time we've kind of came back, so far, we've been bouncing. That's what the markets been doing over time. It's been doing it for months, actually, for the last year. It's almost been doing the same thing. The dip mentality is it.

What you want to do is always pay close attention to how far stretched we are. Either to the upside or the downside. You want to look at it on the short-term, medium-term, and the long-term.

If you took this out and you look at let's say a Bollinger Band concept, let's say you go out to the weekly. You can see we were a little bit stretched out here according to the earnings from companies like Google, Microsoft. A little bit stretched on this upper side for more of the medium to longer term. We're in the upper end so a slight little pullback even 1% would have put us more in a normal range. If we get more into the three days, two-day, or one day, you can see before we started that sell-off, we were at that upper range. Once we got that sell-off, we came in the right around that Bollinger Band level and bounced right off of that.

You could look at it and say hey this is just a standard little pullback, little consolidation right there and boom we had that bounce.

The question is - as we look at today, is today overstretched again?

Just like this range right here on our pullback recently since this last week, it was a little overstretched.

Now the question is - are we overstretched again to the upside?

On the longer-term, I don't think so. I think we could still have higher prices, but on the shorter-term, I think you know a little bit half of that pullback. So instead of a right now, we're up I think about 22, 23, 24 points looking at the screens. Even a pullback of 5 or 10 points would be a little more normalizing and normalized to where the market should be.

Of course, the reason it's moving so quickly is due to the VIX being much higher. Here you notice we've hit some VIX around the 12,13 level and now we're down in the 11. Where usually, we've been trading around the 9,10 level.

You want to be very careful. With a higher VIX, you'll get more whipsaw, and that includes whipsaw to the upside and whipsaw of the downside.

If we look at this and you can look at it on a short-term, this is not for the long-term - not even the medium-term, but if you take a look at this, this is your head and hen you have your shoulders right here. It's creating like a head and shoulders pattern that was built right there. We got that bounce. Again, something to think about. Something to consider is this just noise for today. I don't know I can't tell you what I'm watching is how strong this volume move is. If this volume bar for today is much stronger than these other big spikes or even higher than the moving average, then I would say we're back into buying a dip mentality. But for now, it's just one day and one day doesn't make a trend.

You want always to be a little more careful that all of a sudden changed your whole game plan. For me, looking at the overall market, I see this market here's our upper range here's our upper band, and then the way we've been moving here's kind of our lower range and lower group. We've been playing around in that area and here's a little bit an outlier.

You could see we've hit these little points right there and we're isolating between that upper range and lower range, and we're going at it at this angle.

Now, is that angle a little bit too steep? Time will tell. I mean, for now, it seems a little bit more normal and healthy. I would think it's a little bit of a slower sloped angle. Maybe a little bit healthier but right now we're going at this more accelerated angle or level. I'm always looking at the speed.

Even though today is a little bit strong, things always re-balance themselves in the marketplace. So always remember that.

Amazon

If you look at some individual stocks and as we take a look at companies like Amazon, they're still holding up very well especially since the breakout from their earnings they're doing fantastic. The concern for me here is how far stretched are we on a company like Amazon.

Again, you look at the daily. What scares me a little bit about the overall market is that - you have that thousand one hundred level and once you get these pullbacks and if you get some nasty movements to the downside while this whole range is pretty big.

The reason I share with you the pullbacks are the things that scare me instead of like stocks that I'm excited about. The reason I share with you the things that I'm worried about or scared about is that that's what allowed me to be successful in this business. Looking at things and I guess worrying or looking at these things and being concerned about them is what will enable me to be aware of what could happen if it goes against me. This is a possibility. When you see those things allows you to plan for them. So, think about that in mind rather than me looking at this and saying the possibility of this stock and just telling you it could go to 1600. That's a different mentality.

Whereas, when I look at this, and they say what's the risk, I'm always looking at? The risk is if we get back into 1100, we could actually come in and get in and fill into that area into that $1,000 range. Again, those are the risks.

If you look at Microsoft, as well as this one, it's not even following through like some of the other stocks because right here you have a big open gap. Again, I could sell off for $3 lower and when you look at this Bollinger Band, I mean it was way outside that range at least on the short-term. If you look at even the medium-term on the weekly, you can see we were way outside that range. That's potentially why we had some of this digestion that the little pullback that we've had even in the overall marketplace.

Taking a look at Square, also powering higher, look at it way on the upper range on that weekly continues to move to the upside stair-step pattern. That's what the market's doing. That's what the market's demanding.

If you look at Netflix, nearly a similar kind of pattern at the 190, we're getting a little bit of a bounce. But again, you're watching the 190 because you're right there at the moving average.

All these things come together at these peaks, and you're noticing a lot of these stocks. They're coming right there at these critical levels. If they can't hold that becomes problematic because now you have all of these things either dumping or selling off all at once. Also, if they bounce, they also bounce a lot of them all at once as well. That's why you get big moves sometimes to the to the upside and the downside.

Let's take a look at a couple of other stocks here that are relatively common on my list.

Google

You can see we have a little bit of support level and of course a little bit of a gap. Again, that's the concern - the gap. You have a little bit of overhead resistance, so we are digesting and consolidating at this price level.

Tesla

Tesla was doing pretty poorly up until this point, and that was our support level. Just when you look at it due to the overall swing points of the past within this company, and now we're coming in getting a little support, and there's our little bounce. Could we get a little bounce right here up to this level and then a sell-off further? Yeah. It's possible. Absolutely nothing would be wrong with the stock if it did that is just normal healthy movements we're getting in. We're filling that gap, and a little bounce higher would create some additional changes or could create other movements to the downside if that bounce is weaker.

You're watching the bounce here, and it could reject.

If it bounces and holds, in that case, you want more volume and again then the next level to watch is this upper double top range which would put you at 390 on the stock.

CMG

CMG has not had some positive news lately. I talked about this stock probably getting to about 240 before it may get a nice solid bounce or some positivity. You can see we are creating this an ABCD pattern in the stock. That's why I projected 240. We had a longer-term ABCD pattern to the upside in this stock. You can see how that played out over multiple years. But now to the downside, we have the same thing happen 235, 240 could be that range.

Baidu

Baidu also attempted to break out-out of this range. You can see from the weekly chart but rejected it, and it rejected at 250 too far, too fast potentially. When you go to the monthly, you can see didn't make it. Now we're back into this range about 215 is your support on that one. If you're looking for the shorter term, about 230 which is kind of where it's bouncing right now, but I will still be a little more careful on this one.

Your other key support levels right around that 200 level.

Alibaba

This one continues to move higher in an excellent accelerated fashion so continues to do well you can see just the overall steepness of the curve continues to move

Apple

If we look at Apple, a move was a bit stretched. We get a little bit of a pullback, and now you got that bounce. If you look at this pullback, I believe it is about 38%, yet we're at 38.2% pullback which is right around the standard Fibonacci sequence. You got this little counter-trend bounce, and then we'll see what happens here at that level to see if it digests at 173 or so and go from there.

When I know it's been just continuing to do very well since that 2016 level, we had that digestion I talked about in critical charts. The digestion stock continues to do well. I won't be surprised around this level if we start getting a slight pullback sometime soon. Just a little one, not a huge one. Just because that stock is coming into a swing point right here at this level. That could be any time right now. It could be a little more at the highs of that peak at 160, 161. That's another possibility.

P&G

Our resistance broke this coming back to reach that. We're going to see if it can cut back into that this range or this level. If it cannot, it may reject it and roll over.

ExxonMobil

ExxonMobil also was a little bit stretched. So when you draw this out a little bit further, you can see and come into this resistance. We've got some selling over here, some heavy selling coming right in and it's tanking pretty seriously. Again, just due to technical resistance levels.

AMTD

You can see our resistance broke out, came back retest support, had a little trouble getting above that. Came back into this level, little support right there. Held it there again, that's your key level. Unfortunately, the volume here is a little bit weak which I don't usually like. You can see it dying out a little bit on the break. So I would be a bit more careful on this one.

Bank of America

Some of these banks again coming into these key levels of support as well. When I watch these things, so many of these stocks are some key levels it's a fascinating moment because that's when you get those movements. That's when you get the movements to the upside real quick and the downside.

If you're trading this market and you're new to the marketplace, you want to be very careful with a little bit of a higher VIX because it'll whip you around a little bit more than maybe you're used to. If you just started trading and you were trading around this level or with a lower VIX mostly, and you were able to dodge a few bullets, that's fantastic and great more power to you. But on the other hand, you also want to learn how to trade in higher VIX environments or higher volatility environments because they can whip you. You need to be a little more patient because they move so much quicker. You either have to be quicker on the trigger or be a lot slower on the trigger because you'll want to buy things or you'll want to sell items faster.

Just be a little more careful here as we wrap up the week.

With higher volatility, you'll want to go ahead and make sure you take some off the table. Whether that's a 1/2, 1/4, 1/3, whatever it is 10 shares, 50 shares, however many, you're trading take a little bit off because then it reduces your position - reduces your risk and allows you to have more capital when new opportunities present themselves in faster markets because we are more in a quicker VIX market.

 

Are we getting a VIX move that's going to move like this to this channel, so we're getting now this little pullback but are we going to get a little bit even higher bounce into the 16 next?

That's my next little bit of concern. Are we going to get that move which would then sell off the markets even faster and harder sometime over the next month or a couple of weeks? So be very careful open to ideas of what could happen. That's how you stay alive in this business. That's how you be more consistent and profitable in this business.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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