The DJ-30 closed the week down 0.21%, or 45.13 pts from last week’s finish, although it was able to find support on Friday at the 21 dma. The Nasdaq also closed the week down for about a 2% decline, ending a volatile 5 days of trading. It tanked Monday & Tuesday, followed by a failed mid-week attempt to find support at the 50 dma, with the sellers ultimately taking over as the COMPQX closed below the 50 dma for the first time in roughly two and a half months. Following suit, the SP-500 also finished the week down, as it lost roughly half a point, breaking thru and closing below both the 10 and 21 dma for the first time since May 17th. In the short term, this all sounds pretty bearish. But let’s take a closer look to put this into context. 

Yes, May 17th was a major down day in which we saw the markets tank, with the Dow taking its largest loss in 8 months. However, this was actually a turning point in the market, as the markets reversed the next day leading to significant gains in the Dow, Nasdaq, & S&P, with each index rising in price 3.1%, 5.1%, & 3.5% respectively, in less than 3 weeks! Compare this to each index’s gain for all of 2016, (Dow gained 13%, Nasdaq & S&P gained 10% each), and you start to wonder if maybe the recent retracements in price could be leading us to the next run up in price that we’ve been waiting for after watching the month of June end in funky trading range.

Combine this with the fact that the current VIX reading of 15 is the highest that we’ve had since, you guessed it, May 17th, which had a VIX reading of 16 (and since we know extreme highs show possible bottoms in SP-500), the odds seem to be telling us the market is likely closer to a bottom than it is a top. Now, let’s take a look at this from an even larger perspective.

 Despite the the S&P & Nasdaq both getting clobbered in the June 9 “tech-wreck’, both indexes still managed to finish the first half of the year with record gains. The Nasdaq had its biggest gain in 8 years for the first half of the year, while the S&P 500 saw its biggest first-half of the year gain since 2013. The S&P saw Tech shares gain roughly 16% in the first-half of 2017, double the 8% gain the index saw as a whole over the same time period.  In just the first 6 months of the year, both AAPL & NFLX shares are up a little more than 20% with FB leading the way up 31% for the year. This is just another reason I always harp on trading the superstocks and even more ammo to believe the bull market is strong as ever. 

Short Term Herd:
The STH is in a bit of “no man’s land”. But because we are in a bull market, we have to give the odds to the upside. Watch the market closely, and if prices rise this week, we could see buying opportunities present themselves.
Long Term Herd:
The LTH is still at a buy area. The odds still favor higher prices as the market has had plenty of opportunities to go down but hasn’t followed through. 
Bull Market Status:
We are still in a confirmed bull market. As we previously mentioned, the market saw record first half of the year gains, with the second half of the year likely to follow suit. Currently, the US economy continues to have earnings growth, low inflation, and very few indications of any looming recession. While the market saw a significant boost from the results of the election, the only things that could slow us down are the very promises that the Trump presidency campaigned on. In other words, the post election surge in national confidence in the economy could give way if the current administration proves unable to fulfill their campaign promises of lower taxes, hefty gov’t spending cuts, and significant investments in US infrastructure.  But as you all know, I’m not one to make predictions, so we’ll give Trump and the economy the benefit of the doubt or until we see the markets start to show otherwise. For now, it’s a bull market until it ain’t.
Stocks & Trade Ideas
Netflix – Despite not getting the movement in price we wanted last week, NFLX has come down to a support area near the 100 dma. Sticking with our position from last week, the odds favor higher prices for this stock.

Alibaba – BABA continues to be bought at the 10 dma by institutional buyers. Possible bounce up on 10 dma. Google – If GOOGL reverses tomorrow, we could see the big buyers jump back in at the $940 support area. FacebookFB odds favor movement up this week. Put FB on your watch list as it found support once again at the 50 dma and could be ready to finally take off to new ATH’s.

Powershares QQQ Trust – QQQ down at major support, if it holds, odds favor higher this week.

Russell 2000 Index – IWM still trying to break out of a long box – 3rd times a charm? Good odds it may come out. If the small caps start to run, it’s a healthy sign for the bull market as it signals investors willing to take on more risk. Disney – DIS – As we stated in last week’s newsletter, “DIS looks ready to finally reverse its downtrend. Higher prices are likely this week.” Keep on watch list, if it continues higher this week, could find new breakout buying above 107.50.

Trading Psychology

Do you feel the need to make predictions? In my opinion, it’s a waste of time as tomorrow’s price is unknowable. All we have to do is follow price action and let the market tell us what to expect. 

The Merriam-Webster dictionary defines a Prediction as: Soothsaying, Prophecy, Prognostication, or Guess. For me, the last one, “Guess” sums it up. OK, soothsaying might even be more accurate. Any prediction of the market, stocks, or index is really nothing but a guess. An opinion. Would any of the CNBC pundits bet their entire 401K on their own prediction? No, and the answer is always the same. Because it’s just an opinion or a guess.

The day you understand this is a game of odds and probabilities, and how to play the odds, is the day you become a trader who can succeed in trading for a living!

For this week’s reading, I challenge you to find and read 5 articles on retirement and then email me two or three of what you consider the most important steps to planning for retirement. While this may seem cliche to say, it is never too early or too late to start saving for retirement. If you can even find one thing from this article that maybe you hadn’t thought of, it is worth your time. For those of you youngsters, it may seem way too early to think about retirement savings, but trust me, it comes quicker than you’d imagine.

Write down your goal, “I want to save X every month”, review this every 3 months and see how your progress is coming along. With the current trend of senior benefits trending toward zero, any of us would be ill-advised to think we can survive off the retirement benefits our gov’t and even employers offer us. Use trading as another vehicle to help start saving for this. Your older self will thank you for starting to save at a young age!

Until next week, trade with passion and always, always use a stop loss!

All the best,

Coach

Randall Hudg