Are stocks about to hit new heights?
That was the question that crossed my mind Monday morning, as overnight news from China sent equities screaming higher after Friday's dramatic sell-off.
On Monday, April 20th 2015, stocks were up about one percent after being down a bit more than that on Friday. I will let smarter people and highly trained economists digest and analyze the news out of China, and I will focus on what I know better - charts and trading.
My first reaction to the news of China lowering rates, perhaps the first step of QE over there, was that the market is going to head toward all time highs soon. I then took a look at the four major futures indices: Mini SP 500, Mini NASDAQ 100, Mini Russell 2000 and the Mini Dow Jones. Except for the Russell, they all were telling the same story - the market is still within a rnage bound trading, between major support and major resistance levels.
So far, I am seeing lower highs, but I am also seeing higher lows. I decided to share the Dow Jones Cash index with you rather than share four different charts, as I feel this chart is a good reflection of where we are at in general for stocks.
Click to Enlarge
The big question, though, is "Which way?" My speculation is that if we take out the high from March 23rd at 18205, the door might be open for ATH - All Time Highs. On the flip side, if we can take out Friday's lows at 17748, the door is open for a much deeper correction.What these tell me is that we are about to break out of the very WIDE range we have been trading at.What we see in the daily chart of the Dow Jones cash Index below is the high made on March 2nd, a lower high on March 23rd, and the last high on April 16th. We are also seeing that recent lows are starting to rise higher than previous lows.
At this point in the game, I personally would look to attack on a daily basis and "go with the flow" or go with the trend for the day. It seems like overnight moves are volatile, and what seems to be a bearish market one day becomes a bullish market the next day. As long as we are in this range, be careful. If we confirm a higher breakout on a daily close, it may be time to go long all over again....
For those of you who don't have much patience, I would recommend buying both vertical put spreads and vertical call spreads, as I feel a big move is coming.
My estimate is a 60% chance of going higher, 40% chance of going lower.....
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