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The Nasdaq Advance Decline ratio chart gave a swing long buy signal on Friday, August 25, 2017. The Advance Decline ratio chart shows the number of stocks that advance in value to the number of stocks that decline in value over a given time period. An increasing advance decline ratio signals a bullish trend while a decreasing advance decline ratio signals a bearish trend.
Nasdaq Advance Decline Chart
It wasn’t just the Nasdaq Advance Decline chart that gave a Parabolic SAR buy signal. The S&P 500 Volume Advance Decline chart also fired off a SAR buy signal on Friday, August 25, 2017.
The thing you need to know about market breadth (advancing stocks versus declining stocks) data is that the exchanges do not publish the data themselves. It is left up to the data providers like StockCharts.com. The exception to this is the Common Only A-D numbers generated by the NYSE (which formerly were available on the NYSE web site a day later). The differences you see in market breadth data are because of the different databases and datafeeds run by stock market data vendors. In order to calculate advancing and declining issues, a data vendor must first know what stocks are traded on the exchange. A data vendor must know the price at which each stock closed yesterday. The data provider must know the current price of each stock and be able to compare that to yesterday’s close to determine if a stock counts as an advancer or decliner.
Both the S&P 500 and Nasdaq Advance Decline ratio charts do not support the more bearish price action on the S&P 500:
I think in all cases with the Parabolic SAR buy signals, we need confirmation above the SAR buy level to confirm the signal. The S&P 500’s bearish inverted hammer candlestick on Friday does not support the SAR buy signals. Furthermore, the TSI is still giving a bear signal and the CMF just went negative which is yet another bearish signal.
TheStreet published an article on Friday, August 25, 2017, about the strong market breadth here.
Over the last three trading days, the S&P 500 has been doing a late day fade which also favors the bears:
For more advanced day traders, I did this lesson on day trading stocks and late day fading.
The SPY chart has formed an inverted hammer which confirms some type of retracement is underway. The long upper-shadow shows selling and distribution into the upward move.
Will this be another headfake like what happened on the Russell 2000? I have added Fibonacci retracement levels on the chart and the important zone to watch is 242.50 down to 242. We want to see if the previous resistance of the uptrend channel becomes support.
The RSI shows that SPY is overbought as it kissed the 70 level and is now falling which also suggests a retracement is underway.