And one day later: #STFR. Quick hits are the best hits.

2018.07.06 IWF - STFR

I don’t put a lot of faith in support and resistance because the entire history of the stock market is one of breaking support resistance levels. However, it typically takes more time for price to grind through new highs instead of returning back to where new highs are a possibility.

So I made a quick buck and am hunting for the next trade.

IWF: #btfd

If you want to skip the entertainment below and get straight to the punchline: IWF has shown strength over the past X months and recently experienced a pullback. It looks like the drop has stabilized so I’m going to jump in and try to ride it back higher.

However, if you want to read on for what too often passes for trade analysis, feel free to keep going.

Obligatory Macro Environment Analysis

Trade war jitters probably caused the pullback. I’m thinking interest rate hikes might be another likely culprit. Of course, maybe you just had a bunch of people decide to take profits, which lead to a cascade of sell orders from algorithms and monkeys. Honestly who knows but we just experienced a risk-off period that created a buying opportunity for us.

Chart Analysis of Questionable Value

I could draw a bunch of random lines on the chart to pretend like they show support and resistance levels. News flash: they don’t. The classical interpretation or the price action on the chart is a rising wedge. Some technicians would have you wait until price breaks the upper line that represents overhead resistance, some would have you wait until price breaks the upper line and then “retests it,” while others would have you enter off support of the lower line. I’m a short-term mean-reversion trader so I’m doing the latter.

Just so we’re clear: I’m not actually using that “rising wedge” to guide my trade because you could also interpret the price action as a tiny dwarf wielding a really long whip that’s about to be cracked. I’m not sure what you do with that information, but there it is.

2018.07.05 IWF - BTFD

Since the randomly drawn lines above are not predictive we always use the pioneering work done by the Franciscan friar William of Ockham (of Occam’s Razor fame) to double check our assumption. It’s a 4 step process:

  1. Pour yourself a shot of your favorite liquor.
  2. Take the shot.
  3. Now squint at the chart for no more than 2 seconds. A real technical analysis pro will use his peripheral vision while squinting.
  4. Answer one question: did the blurry, squiggly line you thought you saw go from the bottom left of the chart to the top right?

If you answered “yes” to the fourth step above then you’re in luck! The trade has been confirmed. If you’re somehow not sure, then repeat steps 1 through 4 above until you have your answer.

Obligatory comment on what’s driving sector support

A lot of movement in markets is random noise. Narratives happen that get overblown, which leads to a sell-off. At some point that narrative goes quiet or gets replaced. Since the trade war rhetoric has simmered down and news is out that Europe is actively seeking a way to diffuse it the next narrative is likely to be the old narrative: the US economy is still growing, unemployment is really low, and inflation is still contained. So go buy growth.