Mid Day Thought: The Banks are Green

Big banks have been green all day long into this weakness.

GS, BAC, MS, JPM, WFC, etc.

Carry on.

Over the years I’ve used a particular indicator to help me time buy points in mindless trends like this. I’m not a big fan of technical indicators, but this one is based on market breadth, which makes it much more relevant and useful than indicators based on a rear view mirror’s perspective on price. This indicator I am referring to is the McClellan Oscillator.

I use stockcharts to get a daily read on this into market weakness. I use this tool specifically for oversold readings in markets trending up, and overbought readings in markets trending down. That’s all. It’s an EOD indicator, which means it will only report a value at the market close each day. However, I’ve rigged up a way to get intraday readings, and today the indicator is pushing -70.

Let me explain why this matters.

All readings below -80 are considered oversold. I’ve only got 3 years of signals here to display, but align these signals with a chart of the $SPX.

In terms of the McClellan, we are not yet oversold. But here is how this usually pans out. We’ve likely seen the session lows for the day. At the same time, I doubt we see any real bullish reversal here. However, if we gap down tomorrow, and remain above 1634 in the $SPX, I am going to be a big buyer into that set-up. Those days where the market is down and the McClellan is oversold, there will usually be a divergence that takes place. Usually, it will be in Copper, the Russell, or the VIX. This means market down, but one of those three instruments is providing another signal. In every “correction” like this, that is the playbook in almost every event. Go back and look. Days where the market was down, McClellan below -80, either the Russell was up/flat, the VIX was lower than a prior high, or Copper was green that day.

Let’s watch this unfold in the next few days. If you see it coming, you’ll know where to initiate real risk.

OA

I love today’s action. Gap up to burn the shorts, fade to burn the bulls that chased. The only winners were those who loaded up on Friday, which I did.

I think this consolidation could look similar to the one that took place in February. Once I see what tomorrow looks like, we’ll chart some comparisons. At the moment, the charts I am watching closely are…

Watching a possible reversal pattern setting up in the $SSEC, which almost never goes up.

This is an important balance area in Copper.

Also watching this conviction move in the Z’s.

The stocks I am watching most closely right now are the rare earth plays. They look to be actionable this week.

I usually sit out days like today, but love to trade the day following  moves like this. Momentum is much easier to capture. If these Rare Earth’s see a little strength, they might see a quick pop to recent highs.

Disclaimer: Just because I blog about a stock or a trade, does not give you the right to go out and lose money in it. In fact, it prohibits it.

Hey guys.

I am blogging from a relatives house during some late night attempt at a holiday gathering. No video recording software here, but below are the ideas I’ve flagged for the week. GREAT set-ups.

See you tomorrow.

Weekly Watchlist, CLICK HERE.

For the $10 Bangers Watchlist, CLICK HERE.

Here’s a quick look into some weekly watchlist ideas you’ll hear about this weekend. These are a few of my favorite option plays for next week.

AMZN

DECK

MCP (Or QRM, REE)

AAPL

Remember, these trades will treat you better if you buy red, sell green.

OA

Materials related stocks catching a bid here. Nice rotation setting up for next week.

Long $ANR, $WLT and $X.

Also picked up a position in $GS for next week.