support sliced and breakouts questioned

SPYdaily$SPY last week we were monitoring the slight 3-day pullback, making note that the market was innocent until proven guilty, as support had yet to be broken and the breakout was still firmly in tact. This week we saw the pullback continue as the bulls fought hard to stabilize the markets for the majority of the week until Friday where it all came crashing down. We fell nearly 1.5% on Friday, closed on the lows, and definitively broke support and failed to hold the breakout level around 208.50. Heading into next week we need to see how comfortable the market feels trading beneath that breakout level. Are we experiencing a bit of an overshoot retest? Or are we at the very beginning of a false breakout that is going to send us back to the bottom of this extended range from 199 to 209? It’s not worth spending time predicting which scenario is more likely; rather, it’s more important to keep an open mind of the two extreme bullish/bearish outcomes so you don’t get too complacent with your holdings. Friday was enough to stop me out of my remaining longs and I am currently flat heading into next week. 206 – 209 is the immediate range I’ll be monitoring for the $SPY and for my timeframe/strategy, it’s a period to sit on my hands and stay light for the dust to settle. Keep an open mind and stay mindful of your risk during this period of elevated volatility. iwmDaily$IWM the big difference between the small caps and the $SPY is that the Russel, while still experiencing a pullback recently, is still holding above the major breakout level of 120.50 from earlier this year. This market, while not as strong as the $QQQ is still outperforming on a relative basis. The rising channel that had been in place for a few weeks is breaking down and next week it will be interesting to see if the $IWM follows the S&P500 by overshooting it’s breakout level. 120-123 is the immediate range I’ll be watching, and I am mentally noting the outperformance in this index.

TLTdaily$TLT which started off strong in 2015 is now red on the year and looking very bearish given Friday’s breakdown from recent support. After the fast leg lower from 138 to 126 with a minor sideways base this name looks real heavy continuing to the downside which might suggest this 118 to 120 mattress of support is an area that wants to be tested over the coming weeks. The bears are in full control here in the near term and I wouldn’t want to be getting in front of this on the long side until we can see stabilization or price recover above 127ish. USOdaily$USO continues to chop around in this box moving sideways from $18 to $20, and seems to stubbornly be hanging out at the lower end of this range. I put on a long trade on Wednesday after the bulls closed us above 18.75 but quickly stopped myself out on Thursday as we failed to follow through and closed on the lows. Overall I like the price compression in this range for a potential trade, but we’ll need a little more time to see which way this resolves. On watch.

tslaDaily$TSLA is interesting this week as it starts to hover at the lower end of this multi-month range between 193 and 220. If you were to look at a weekly chart you can see the significance of this lower 190 area, and an affirmative breach of these lows could get scary real fast for the bulls. Keep an eye on this one heading into next week if we do see further market weakness. The bulls are up against the fence right now and it will be interesting to see if they step in here again for the fourth time.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 25 years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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