After the rally we saw at the end of the week…
I had a “Countdown” member ask me to talk about my thoughts on it, and what I was looking at to play during market open on Monday.
Well in anticipation of a Trade War truce and progress on the many fronts of the US/China discussions, the ES, NQ, and YM were carried to their (nearly) overbought levels… once again.
This brought us to overbought territory… which brought us to a distribution market… the same distribution market that we faded earlier.
If we enter a distribution market (again) which we more than likely will, check this out…
STEP ONE: Back in The Same Distribution Market
What we’ve heard now is a substantial phase one deal with China. However, I’m not going to write a lengthy rant about the logistics of that. I’m sure you’ll hear it ad nauseum over the next couple of days.
If we’re talking about a “phase one”, then logically that means there’s going to be a phase two… phase three… and who knows how many more, right?
What’s this mean?
Phases mean a little bit of the same type of psychology that we’ve been dealing with for the past 12 months within the markets. That being?
Things are going to be great!
Things are once again, doing really, really well. However, instead of trade talks, now we’re talking about the different phases of agreements being written up — so it’s a similar narrative, just a different subject. That gives opportunity to talk the markets up in anticipation of these new phases.
What that looked like for the charts at the end of this week?
STEP TWO: Sitting at the Top of the Range
We were once again at the top of the range, but not only on price. We also were at the top of the range on the V Score and on the standard deviation. Then if you looked at the Dow, it also sat up near the top of its range — not at the top completely, but near the beginning of the top.
I’ve highlighted this clear overbought territory in the video below, while walking you through the charts of what I’ve explained above. Just click on the image to play:
STEP THREE: Outperformers Come on Both Sides
Now who would’ve been a good player to have on your watchlist going into this week?
The Russell looked strong to short. With the end of the week showing the Russell to be a little more like a trend following short. Then of course, you’d have wanted to pay attention to your outperformers.
I say this all the time, Gang. Outperformers.
But one thing to remember — you can be an outperformer to the upside, but you can ALSO be an outperformer to the downside. Meaning? An outperformer to the upside will have the best uptrend, and an outperformer to the downside will have the best downtrend.
Who did that play out to be after market close on Friday?
To the downside? Amazon and Netflix looked good.
To the upside? The ITB looked strong. So did Apple.