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Tales of a Technician: Treacherous Technicals

July 11, 2022

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Stocks are in a tricky spot right now, especially for directional traders. And it’s one big reason why my Team Phoenix Trading Lab has so few positions. Remember, as a tactical trader my job is to use chart reading to assess the odds and only bet when they’re in my favor. I put the most amount of weight on the pivots of the major market indices. And right now they’re sending mixed signals. Let’s use IWM as an example:

Bear signals: We’re below the 50-day moving average and started the week with an ugly 2% whack at resistance. With the old pivot high holding, bullish momentum has been halted. The last three rallies into the 50-day proved fantastic shorting opportunities.

$IWM chart on TOS

Bull signals: We formed a higher pivot low last week and saw a consistent multi-day rally that created a equal pivot high.

$IWM chart on TOS

The conflict places traders in a pickle. And depending on which signals you value most, bear trades seem just as attractive as bulls.

For instance, bears could have entered on Monday when we broke Friday’s low, reasoning that resistance held and the risk/reward favors trading the short side. The problem is that the previous bear retracement failed by forming a higher pivot low and I just exited bear trades during the strength of last week’s rally to avoid them turning into losers. Being emotionally flexible enough to bail on a bear only to re-enter a day or two later is difficult. But that’s what deploying new bear plays today would have required for many traders.

The easier route for bears is to wait for a break of last week’s low ($167). That would invalidate the higher pivot low and return the daily time frame to a downtrend. Of course, you’ll get a worse price, but such is the tradeoff when seeking more confirmation.

While bulls wouldn’t have added exposure on Monday due to the lack of upside movement, they certainly could map out an ascending triangle and deploy new long trades if we break resistance and the 50-day moving average at $178.

This is what I’m waiting on before entering new trades in my lab. Being smaller has served us well and the market’s not giving a reason to change. I’m favoring quality over quantity, in other words.

My Favorite Pick Now

Biotech stocks have been en fuego and it has XBI on my radar. It’s the S&P Biotech ETF and tracks a basket of small- to mid-cap biotech companies. It’s fresh off a double bottom pattern that carried prices 30% off the lows. With the stock up six days in a row coming into this week, it was due for a pullback. Sure enough, XBI fell back on Monday, falling over 4%. For now, this appears like a garden variety bullish retracement so keep it on your radar.


Given the messy market backdrop, I’m still favoring high probability cash flow plays over directional ones, so naked puts or bull puts are my strategy of choice.

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