The Gilmo Report

June 28, 2017

June 28, 2017

The strong action we saw in many stocks on our watch list on Friday saw little to no follow-through on Monday. I tweeted early Monday that I didn’t like the reversals I was seeing after small gap-up openings in a number of stocks, including those that I was holding long myself. This caused me to take a cautious stance as I moved into cash and threw out my usual hedge in the ProShares Ultra VIX Short-Term Futures ETF (UVXY).

That hedge worked well for one day yesterday as the NASDAQ Composite Index was hit hard. This sent it into a tail-spin as it busted below the 20-day moving average and ended the day just above its 50-day moving average on heavy selling volume. This gave the daily chart the look of an ascending neckline breakout to the downside in an overall head and shoulders type of formation.

But as I tweeted last night, was this just too obvious? A neckline breakout to the downside from an H&S-looking formation might have looked juicy on the short side back in the old days.  But in this market, just when the short side looks like the juiciest piece of filet mignon you’ve ever seen, the Ugly Duckling steps in and declares, “Denied!”

And if you stop to think about it, despite yesterday’s broad sell-off, the NASDAQ has so far done little more than successfully test its 50-day moving average. Today it rallied off the line on slightly lighter volume, which to me means that sellers didn’t swarm the market, despite all the drama.

For now, the NASDAQ remains within what is more or less a choppy one-month price range as it acts something like a bucking bronco, trying to throw investors off its back.

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