The market

Transports had a big move down last night. They went down 3.11% – anything above 1% is significant, so this was a big deal. Looking at the 21 EMA set-up on the Dow Jones Transports index, you’ll see that it has come down three-times the average-true range below the 21 EMA. I think the index is now stretched to the downside and I would expect a bounce back from that oversold condition. The transports have come down to a support level on the daily chart.

Given it’s come down so far I’d expect a bounce higher, but that’s not to say it won’t go lower. Anything can happen and if you trade long enough you know that to be true. However there is a good chance it will rebound higher after this big sell-off. Of the 20 stocks that make up the Dow Jones Transports index, only two were up, and we are in one of those stocks to the upside ALK (Alaska Air). It showed a lot of relative strength to be up when the index went down. Just before we entered this trade, Alaska Air had also been down three-times the average-true range below the 21 EMA. We were expecting a reversion back to the mean – for it to move higher – and that is exactly what happened. That trade is looking good. The other transports stock which went up was CAR.

The sectors

Biotech was down the most, 1.87% but dropped below its significant support level of 323. That is a bearish sign for biotech and we were looking for it to have a move higher after breaking above that level. We need to exit any bullish positions in biotech until it breaks back above the 323 zone.

The strongest sector was energy, up 1.02%, closely followed by consumer staples up 0.98%. The two largest sectors, technology and financials, were down. The Nasdaq was also down.

Where you could have made money …

An area where you could have made money last night was on the UVXY. I teach my day traders how to trade this index. The S&P 500 started selling off around 12.30pm. It had a move from 2,482 down to 2,459, a decent move in just over an hour. In that time the UVXY moved from 28 to almost 33. You could have had a nice trade on the UVXY to the upside as the SPX was breaking down.

There are always opportunities to make money. Energy was the strongest last night, so you needed to look for bullish positions in that sector. The stock APC had a 30-minute opening range high of $45.70. Once it broke that, it formed a long bull-flag on the five-minute chart, and then broke out of that at 11.40am. It finished up 4.76% for the day.

IBB (biotech) was the weakest sector, but a stock that bucked the trend was CLVS. It was up 5.51%. It broke above the 30-minute opening range high at around 10.20am and formed a nice bull-flag.

With the Nasdaq down 0.57% there were stocks to make good money to the downside, including Netflix. It broke its opening-range low of $187.26 and went right down to $179.38. It formed a bear flag and had a very nice ledge, which it fell off at 11.25am.

FAANG stocks bite the dust

All of the FAANG stocks were down with the exception of Facebook up 2.92% on good earnings. It makes sense that the Nasdaq was down.

Going forward …

With transports so oversold, I want to see if it reverts back to the 21-day EMA. The retail sector was up last night, 1.37% and it held its 21-day EMA. I now have a new trade in retail for my elite students given it held its 21-day EMA. This stock has high short interest and a bull flag. They are the sort of things you want to look for. Also watch biotech to see if it gets back above the resistance area of 323.

Would I panic yet? Probably not. Remember all-time highs for those three major indexes I spoke of yesterday – the S&P 500, Nasdaq and the Russell 2000. The SPX is still above its 8 EMA and well above its 21 EMA. The Russell 200 closed above its 21 EMA and the Nasdaq is sitting on its 8 EMA above its21 EMA.

Let’s see what the market does today and we will trade from there.