The market is getting dicey at these levels, and some traders are placing some wild…
One of the biggest lessons most traders take time to learn is that it doesn’t really matter what the market overall is doing. You can learn how to find solid trades even when the market overall is being derpy.
Some of our recent interviews with RagingBull traders revealed their methods for finding potential trades even in times of uncertainty or when the market should be doing one thing but, inexplicably, does another.
I shared more about how I find and target potential trades in How I Target the Markets For Daily Profits. I shared with our editor more about the indicators I target to day trade the S&P 500, and also shared my thoughts about why trading the S&P 500 is more predictable than trading individual stocks. You can also hear how I trade the market with a view to profiting no matter whether it’s headed up or down.
Last week I also shared more about how I first got into trading when I was 16, and shared three of my favorite trading books, and you can catch that episode right here.
Speaking of targeting trades, I caught up with Kyle Dennis recently. Kyle is now approaching almost $10 million in total trading profits!
Although the markets are choppy (red green, red, green) and it’s difficult to see an overall trend for traders to follow, it doesn’t seem to have stopped Kyle Dennis from finding trades using his favorite research techniques of finding catalysts.
In my interview with Kyle he shared how he is able to target trades using catalyst events combined with charting fundamentals. And he gives the details of two free websites he uses from where to begin those searches forpotential catalysts!
Catch Kyle here.
Dark pool activity has been heating up… and that means more “smart money” ideas to take advantage of.
For quite some time, I’ve seen a slew of large bets being placed in the dark pools…
And some of these have been monster trades.
The other day, I mentioned a trade idea in NIO Inc. (NIO) and how this stock could run higher.
Since this trade was so compelling, I want to recap the trade and teach you my technique to uncover potential trading opportunities…
And how traders could’ve jumped into that action.
The other day, I sent out an alert to subscribers about a trade idea in NIO.
NIO gaps up two days in a row in a HUGE way. NIO has hit the scanner several times over the past week and I think now is getting these moves up in on breaks of recent highs and carry-over effect from other strong moves from electric vehicle stocks like NKLA and TSLA. NIO is really extended but holding and could move higher.
This happened when the stock was trading around $11.
That wasn’t the only dark pool activity I noticed in NIO.
Here’s what I sent out to subscribers on July 8.
NIO has moved up strongly three days in a row now. NIO has hit the scanner several times over the past week including yesterday. NIO is really extended but holding and could move higher. I don’t want to be left holding the bag here, but there still may be strength left for more upside.
Here’s a look at the hourly chart in NIO on July 7 at 12:20 PM ET.
Source: StockCharts
That dark pool activity signaled the stock could run higher.
Why?
Well, typically the traders behind these dark pool trades have financial backing. They’re what I would consider the “smart money”.
With the whole electric vehicle stock crazy, I figured NIO could run higher, which was why I found it so compelling.
Not only that, but there was one $4.73M and one $5.1M bet placed in NIO.
I don’t know about you, but if someone is throwing down a bet like that in a stock, it’s an indicator to me.
Think about it like this, who would place millions of dollars into a stock, unless they have a high conviction?
Now there was something even more interesting to me.
NIO has 824.45M shares floating, that’s a pretty big float in my opinion. When I looked at the short interest, more than 140M of the float was short.
That means if NIO pops, it would not only attract momentum traders, but short traders may be forced to cover. In other words, the demand could pick up.
Just by learning how to understand dark pool activity, I believe traders can put themselves in a position to find moves like the one in NIO…
Source: StockCharts
With dark pool activity, I don’t believe it’s necessary to “follow” exactly what the smart money traders do.
In fact, those who were able to catch options on NIO could’ve gained more than that dark pool trader because they bought shares.
Now, if you want to learn more about why this information is so powerful, you can check it out in my education suite here.
Not only that, but if you subscribe, you’ll also receive my watchlists, trade alerts, and my streaming portfolio.
Momentum indicators are some of my favorite tools to use when trading the SPY
It’s exciting when you find the trend and watch it rip in the direction you selected
But sometimes the momentum setup just doesn’t want to work in my favor using the SPY’s
And even though markets are connected…
…there are times when they do their own thing.
Which is why I’m going to show you how momentum can be when applied to other markets.
No matter the SPY, DIA, VXX or QQQ’s, momentum is considered a leading indicator in the entire market.
Now, let’s take a chance to have a first look into why the momentum indicator worked on the QQQ’s today instead of the SPY’s.
A leading indicator is a set of data that changes before the rest of the market begins to head in a direction.
Leading indicators help traders and investors predict significant changes in the markets in advance, and can place them in a trade ahead of the herd.
It’s important to note that these indicators are not always accurate, and said to be “backwards looking”
Now I don’t believe this idea… I find that when combined with other signals or indicators they can actually help to predict the markets and provide valuable information about the direction for the trading day.
There are many examples of leading indicators that investors and traders use to forecast price action.
Prior earnings reports, price action in other markets, and alternative data sources as customer complaints and online reviews are all different leading indicators for their specific cases.
Investors and economists pay attention to the same leading indicator as one another. This causes a “herd mentality” reaction to good or bad reports.
When a group of traders are paying attention to these figures, this can be further exaggerated as these data points are directly related to the stock markets.
One example of this is the jobless claims number that is reported by the U.S. Department of Labor on a weekly basis.
A rise in jobless claims indicates a weakening economy, which will likely have a negative effect on the stock market.
If jobless claims fall, this may indicate that companies are growing, which is a good indication for the stock market.
The jobless claims is just an example of a leading indicator that many traders use to help predict the directions of the markets every week.
And the concept is the same as having leading indicators for the upcoming trading day in the pre market session.
The two leading indicators that I use on daily basis are:
So let’s take a look at how I use the two leading indicators to predict market action for the day ahead.
The global markets are interconnected more than we may think.
When the U.S markets are closed from 8pm to 4am, the world markets are trading.
And every day the pre market trading session opens at 4:00 am and goes until the opening bell at 9:30 am.
From bonds, commodities, and foreign exchange, the world markets influence one another around the clock.
Headlines come out from around the world and many major banks and financial institutions begin to release their outlooks and forecasts for the day ahead at this time.
And by monitoring the news channels in the morning, it gives me a chance to determine which way the markets will head going into the trading day ahead.
It’s important to remember that the pre market works in both directions.
If the US had a poor trading session, and the global markets rebound overnight, there is a higher likelihood that the next trading day will follow along.
In this case, the markets had a strong end to the prior trading day and the global markets are showing strong trading overnight.
Source: CNBC
As you can see the Asian markets were up overnight, with China slightly down. This is signaling strength that should carry over into the US markets throughout the trading day.
An example of a leading indicator is the VIX.
The VIX is known as the “fear index” of the markets and can reflect and even predict when investors are starting to become scared before the markets even drop!
And there is a tremendous amount of predictive power as it’s the pulse of the investors’ fear, hence why it’s regularly called the “Fear Index.”
The VIX suggests:
And this is exactly why I keep the VIX on my premarket list and monitor its move.
Plus I keep it on my intraday momentum indicator grid as well to see what investors are thinking as the days elapsing!
Source: Thinkorswim
In this example, you can see that the VIX / VXX is in a downward trend and showing that the markets should be in a position to rally.
By keeping a real-time VIX on your screens when considering entering a trade gives you a look into the feelings the entire market is having toward the price action.
Here are 5 key ways to analyze the VIX for signals to trade the SPY.
1.) Rising VIX + rising S&P 500:
-Bearish divergence that predicts shrinking risk appetite and high risk for a downside reversal.
2.) Rising VIX + falling S&P 500:
-Bearish convergence that raises the odds for a downside trend day.
3.) Falling VIX + falling S&P 500:
-Bullish divergence that predicts growing risk appetite and a high potential for an upside reversal.
4.) Falling VIX + rising S&P 500:
-Bullish convergence that raises odds for an upside trend day.
5.) Divergent action between S&P 500 and the other index futures:
-lowers predictive reliability. This often yields choppy price action or whipsaws, confusion and range bound conditions
Now this is where things get interesting!
Let’s take a look at two charts of the SPY and the QQQ’s
Source: Thinkorswim
Looking at the SPY’s a normal spot to go long that a trader would look for is for support at the day priors or overnight lows.
Unfortunately that’s not what happened, and the markets just continued lower.
But what about the momentum indicators? How could they be wrong?
Well…wait a minute… maybe they are not wrong at all, but just being used on the wrong ETF.
Source: Thinkorswim
As you can see, the QQQ’s actually listened to the day priors pivot prices.
And if you were to buy the QQQ’s at that level, you would have perfectly timed the momentum that sent the markets back to daily highs by the end of the day.
A leading indicator is a set of data that changes before the rest of the market begins to head in a direction.
Leading indicators help traders and investors predict significant changes in the markets in advance, and can place them in a trade ahead of the herd.
It’s important to note that leading indicators are not always accurate, but when combined with other indicators they can help provide information about the direction of the markets for the trading day.
And as you can see, by using these two leading indicators in your daily trading routine, you can gain a huge advantage over the rest of the markets.
Plus… by looking at other markets, you are in a position where you could turn a losing day into a potential winner.
