Bad News Is the Good News That Flips Bears to Bulls – The Market Breadth

Introduction

I recorded a quick video to summarize my thoughts on today’s flip from bearish to bullish sentiment thanks to a bad news is good news kind of day. You can watch the video or read the transcript below curated, corrected, and organized by ChatGPT4 and then edited further by me. I am using this format to publish my immediate thoughts and observations in a more timely fashion. I will write focused market breadth posts at least once a week.

Bad News Is Good News

Today was a “bad news is good news” kind of day. Bad economic news, in the form of lower than expected job openings, sent the bond market into a rally, which in turn sent yields down. This economic weakness suggests that the Federal Reserve will be done with hiking rates and may even start to ease sooner than expected. Even though economic weakness is bad for the economy, stocks rallied. This is because stocks and Wall Street in general love lower interest rates. So, bad news is good news for today, and that good news turned bears into bulls.

Utilizing Swing Trade Bot for a Quick Market Overview

I am going to use swingtradebot to take a quick look at what happened in the market. I am on the home page, and I am a subscriber, so some of the things I do here you may not have access to if you’re using the free version. Start the review with research, go to the General Market Overview, and sure enough, almost all the green lights are on for the market. Almost all the lights are green. Trends are all up—long term, midterm, and short term.

Focus on Technical Indicators and Signals

If you look over at the signals, you can see a recurring theme as to what has set the market off. What catches my eye, in particular, is that the market has crossed above the 50-day moving average (DMA). I consider this technical signal to be very bullish. Before we dive in further, let’s take a quick look at some other key indicators. New highs well outnumber new lows, 10 to 1 practically. Bullish signals more than doubled bearish signals; this is on the technical side.

Market Breadth: A Crucial Metric for Traders

This metric is the most interesting because, as someone who loves market breadth signals, the way swingtradebot measures it—the percentage of stocks above their 50-day moving averages (DMA), what I call AT50 for Above The 50DMA —shows that market breadth has likely bottomed out for the short term. Almost no matter where the market is, if market breadth has bottomed, then the path of least resistance is upward for the market, and that’s what appears to be unfolding here.

Examining the Top Five Technical Signals for the Day

Finally, I can look at the top five technical signals for the day. Of course, “crossed above 50-day moving averages” is on that list, and you can see the total count of stocks is 389. I am going to go ahead and dive in and take a look at some of the stocks that were candidates on this list. I will filter out stocks that are below ten dollars and click on “Find Stocks.”

A Closer Look at Stock Performance: Sorting by Percentage Change

Another thing I am going to do, that I haven’t done in previous videos, is sort this list by the percentage change on the day. Coinbase (COIN) was the biggest mover of this cohort, and I can hover over the chart icon to get a quick look. This is an important move for Coinbase, as it had been on a definitive downtrend for a while. I chased this move a bit with a calendar call spread. The reason for this is because I think that after such a big move, the stock is likely going to pause, perhaps around the 50-day moving average pivot, and then perhaps resume its upward move next week.

Conditional Strategies for Trading: Using Calendar Call Spreads

This is the perfect kind of condition for a calendar call spread. If I’m wrong, as long as the stock doesn’t move too quickly in the coming days, I can still exit this position with a small gain.

Technical Analysis of DoorDash and Other Stocks

I am looking down the list for other names that I am very familiar with. DoorDash (DASH) is one such name. This stock is also interesting to me because we have, as you know, an Instacart IPO coming out, which will probably put gig economy stocks back on people’s radar. Ironically, of course, Instacart is somewhat of a competitor, so if Instacart comes to market now with a significant amount of cash, it could spell trouble for incumbents like DoorDash, which went public some time ago.

The technicals for DoorDash look pretty good now. It was looking bad before, and I chased it with a put option. That put option is pretty much toast at this point. I could keep scrolling down here to check out names that look interesting. I really like doing the chart view, so I can click on charts and take a quick look. A lot of these stocks are entering this 50-day moving average breakout with downtrends or a lot of choppiness in place. So a lot of these really don’t look all that interesting to me, especially after just coming out of what I thought was a very bearish period.

Key Stocks of Interest: Tesla and Apple

But anyway, one of the stocks that caught my interest on this list, to see if I can scroll to it very quickly here, was Tesla (TSLA). You can see that the 50DMA breakout for Tesla was very marginal, but it’s still an important stock. It gained 7.7% on the day and was looking really bad earlier this month. I genuinely thought that Tesla was, as we say, done, but it has now made a sharp turn for the better. Now, if Tesla turns right around from this area, I’m going to consider it a failure at 50DMA resistance. But I think, given the general sentiment shift in the market, Tesla is probably going to keep pushing forward, and that will basically confirm all this new bullish sentiment. You really want to respect that new bullish sentiment.

Another stock that I want to take a look at, because it had important news, is Apple (AAPL). Now, I’m going to, in a sense, quickly go to TradingView directly and look at Apple, because I have some other chart annotations there that I want to take a look at. So, you can see Apple had a big day—2.2% up. It didn’t reach its 50-day moving average, but again, Apple is a key stock for sentiment. It also is significant in many indices and mutual funds. So, this is important to keep an eye on because, if it does break out above the 50DMA, it becomes very bullish. You can see that this squeeze on the Bollinger Band (BB) is also supporting a big move ahead.

Now, the big event is September 12th, where Apple is supposedly going to roll out an iPhone 15. That’s when all of our old phones will start to die because Apple will want to encourage us to buy the newer phones. But, tongue-in-cheek aside, typically, Apple will rally into these events or at least it’s going to be relatively bullish. So, this is going to support the market, likely for the next two weeks or so, barring any really market-jarring news from the upcoming jobs report, which is on Friday. If it’s very strong, it could roll back all of this bullish sentiment; if it’s weak, bad news will be good news again, and it will further confirm the bullish sentiment.

You can see here my previous annotation on Apple. It was one of the most consistent stocks of the year, where it would tag its 20DMA and just bounce right back, like only a robotic trading machine could do. That’s why, again, if it breaks out above this 50DMA, it’s very important because all of this very predictable action could unfold again.

So, let’s go back to swingtradebot really quickly. I’m going to scroll down one more time for some more stuff to see if there’s anything that I’m going to put on my list. Aha, Axcelis Technologies, Inc (ACLS)! This looks interesting; it’s well above its 50-day moving average. If I can just get a small pullback here to this area, I would be a buyer.

Conclusion and Final Thoughts

So hopefully this market analysis helps you see what I see, and maybe even helps you identify some potential trades. As usual, please remember that nothing is guaranteed in the stock market. Keep your stop losses tight and be sure to stay up on your market news. Please remember to subscribe to my channel if you want to get these market updates as soon as they happen. You can also subscribe to my blog for more thorough analyses. Thanks again for watching, and good luck out there, and trade safe.

Full disclosure: long COIN calendar call spread, long TSLQ