PIck 6 Quinella and Market Direction

Each trading night I look for 6 anticipation set ups for the next trading session.  Doing this for a lengthy period of time has led to a few revelations that assist in managing market risk and exposure.  First, if there aren't a plethora of setups and I'm struggling to just find a few A-grade setups then the market on my time frame is highly probable to be incongruent with my trading style.  Either too many stocks are extended to the upside or they are pulling back.  Second, if setups are found and they don't trigger, this is yet another sign the market and my time frame are in disharmony.

Slim Pickins

Lately the market has been slim pickings and stocks that I have been interested in are not triggering.  Not a single one the past two days has made a high greater than my anticipation entry.  Under better circumstances these should be firing off early in the trading session.  When the market is conducive, such as last week, the landscape looks quite a bit different.

Robusto

 

Green Shoots

Whether the green shoots will flower and fruit remains to be seen but some positives under the surface today.

First there were a decent amount of stocks breaking out today.

Breakouts

New highs over new lows is beginning to trek north bound.

New Highs Over Lows

Currently there are more stocks making all time highs than all time lows.  The number of stocks down across multiple time frames has snapped back as well and there is the potential for a positive cross over across all time frames.

Daily High Lows

For swing trading with the wind at one's back a window may be opening here.

Top of the Pops and The Piano Man

The nature of the beast means the QQQ and the top 5 underneath holdings will ebb and flow in near unison.  Today the top of the pops got hit bringing the QQQ and its top 5 holdings to a near 1::1 relationship.

QQQ Top 5 Holding

In addition the piano man was raked over the coals as stocks that were holding up well had their wings clipped. 

MLAB

PAYC

In addition to MLAB, PAYC, stocks such as: CYBR, ADBE, HUBS, PCTY, TEAM, COUP, ZEN etc...  were dinged hard.

While this was unfolding across many names that have held up well, there is a potential silver lining under the surface.  For one, stocks above their 20 period moving average actually had an upside bump today.

$MMTW

And perhaps more peculiar given the underlying circumstance with high flying stocks selling off hard is the number of highs over lows having an upside bounce as well.

New Highs - New Lows

This may be tapered exuberance in stocks that have held up, particularly in the software sector,  and a rotational move into other industries.

Selling In May

During the month of May stocks have been under distribution with 50% of the trading days showing more 4% break downs than break outs.  

Distribution

The weight of this distribution is clearly seen with the number of stocks making new highs eclipsed by the number of stocks making new lows over multiple time frames.  However, the pressure on stocks has been evident going back to March.   

Highs Over Lows

When the market correction reversed in late December stocks underwent a significant breadth thrust over a short period of two months.  From that moment further the major indices continued to make fresh highs with underlying divergence in both the number of stocks making new highs and making significant headway.  Market risk was increasing until the dam broke in May.

Decreasing Breadth

With the major indices down approximately 7 to 10% across the board, it's time to focus on a tradeable rally.  The number of stocks below both their 20 and 40 period moving averages are approaching zones where in the least a reflexive bounce is to be expected if not the potential for another leg up.

Stocks > 20% MA

T2108 > 40% MA

On a longer time frame, the current pullback has brought individual stocks in my trading universe back to levels of the December turnaround.  It's uncommon for stocks within my universe to reach these levels further buttressing my belief that the probability this downdraft running out of steam is near.  On the other hand this period could also be like October 2018.  In either case knowing what data and information one is looking for on their time frame to indicate where the market is directional moving over it is the primary determinant factor.

2 Year Breadth Trend