After yesterday’s Spinning Top candlestick with long lower shadow, the hope was that today would be a significant bounce day. It sort of was at market open but everyone sold into the move up and markets ended the day pretty much flat.
Here is how we are going to trade this market. We are looking for a bullish cross of the 13 hour MA and 30 hour MA on the hourly chart of SPY.
We have not gotten the buy signal yet on the SPY 1 hour chart and so we have to wait. We could get a bullish 13 hour MA and 30 hour MA cross tomorrow as the MAs have come close together.
I’m encouraged by the fact that traders are not buying massive amounts of puts relative to calls as they did during previous swing moves lower.
In the most recent swing down between December 3, 2018 and December 10, 2018, there’s been hardly any increase in the number of put hedges relative to call buying.
Another encouraging sign is that high-yield debt is turning up which the market usually follows HYG within 3 to 5 trading days.
Finally, overnight futures are up on the S&P 500 and Nasdaq. While the night is still young, positive overnight futures bodes well for a higher market open; however, if everyone sells into the upward move like they did today, futures are not going to matter much.
S&P 500 Overnight Futures
Nasdaq Overnight Futures
The real challenge that traders have in this market is that upward price movement is not creating any sustained FOMO buying. Traders are more afraid of taking losses on a trade than they are of missing out on an upward move. That is Bear market behavior.