Futures opened last night on the East Coast down (-45pts) give or take, as the President increased pressure on China over the weekend, threatening to raise a 10% tariff on $200 billion in goods to 25%, adding that an additional $325 billion in goods could potentially be subject to U.S. tariffs. Needless to say, volatility is back with a vengeance, with VIX trading at 17.67 (+38%) this morning.
S&P 1500 – “Sell in May and Go Away?”
A quick glance at the S&P 1500 Composite chart below renders a bullish verdict, while the financial media will no doubt point to the common mantra of “sell in May and go away” on this negative open.
A major change in the S&P 1500 Advance Decline percent will take more time to convey a sell signal. And, considering markets do not top in one day, we can safely assume a cautious posture while awaiting the verdict. Institutions will signal what they are doing after the opening bell as we watch TICK cumulative on short time frames (60 min).
If institutions seize this opportunity, it will be obvious. My guess is they will sit tight and wait for the dust
Considering the voracity of this move, we will wait until approximately 10:15 ~ 10:30 AM before rendering a judgment. Shorts will cover first, so it is imperative that we wait until after the Opening Range has printed.
If the indices muster enough strength to rally off the lows this morning, we could move back to Friday’s highs in short order. Just be patient.
Futures must rise from the lows, so we will wait for confirmation.
Watchlist for the Week
The stocks on the watchlist have many things in common, namely, all of them show ADX line strengthening. This indicator cannot change in one day, therefore momentum is still bullish. In addition, these potential positions were above their ascending 20/50d moving averages. We’ll look for relative strength and for these to hold on any gaps this morning.
Most leading “FANG” stocks are gapping down this morning, while other leading stocks are testing their ascending 20/50d moving averages. We will seek out the opportunity here as well, as nothing has changed in the fundamental picture for the majority of IBD50 candidates. The same can be said for a large swath of the U.S. companies on the major indices.
Finally, take a deep breath and put thoughts of stock market destruction out of your mind. Pullbacks and volatility are a normal part of this business.
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