A Secret Buy Signal

Today was the first time that the SPY opened lower than the prior day’s low since July 24th. The same is true for the QQQ. Grandpa Russell did it just last week, but not since July 7th prior to that.

The significance of this pattern is twofold:

  1. It can provide measure of the bulls’ confidence, and
  2. It can give you a quick way to identify stocks that may be worth buying on the market’s lower open day and provide you with a great intraday stop.

First, let’s look at the measure of the bulls’ confidence. Today, we saw the SPY and IWM open significantly below their prior day low and their 10-DMA. The reaction to the weakness was to buy, not sell. The bulls are confident.

So when the bulls are confident, which stocks should you buy?

The QQQ, opened only marginally lower. This is the first clue that if the market rallies that day, the QQQ names will probably lead. And lead they did.

The “lower open” was treated like a buy signal by many of the big-cap tech names. More interesting are the name that kept going up beyond the prior day’s high and have now have interesting breakout patterns. Here is a short list (I’m sure there are more) of some big cap stocks that lead the markets higher and have interesting breakout potential right now: AMZN, MSFT, ADBE, MA, FB, NOW.

Take a look at how each of them opened, and you’ll notice that all but AMZN didn’t open below their prior day low. This pattern isn’t a buy signal on it own, but if you have stocks you like and you’re looking to buy the market’s lower open, sometimes lower is not actually what you want.

As an added bonus for looking at the market this way, you can put your stop below the low the prior day, which, in this case, has demonstrated to be significant support.

I gave you the stocks above because they may be timely for OR reversals or continuations tomorrow. But this idea of having strong stocks on your list to apply this idea and OR breakout to wouldn’t be complete if I didn’t suggest you look at this same pattern on AAPL and TSLA today.

Keep it simple.

Best wishes for your trading,

Geoff Bysshe

President, MarketGauge.com

(Geoff is filling for Mish until August 31st.)

Note: PDL = Prior day low, PDH = Prior day high

  • S&P 500 (SPY): All-time high resistance at 339 area. Watch 335 as important support
  • Russell 2000 (IWM): Closed under 10 DMA. Key level to break above is 158, then 160 is resistance area. Sitting on the 10-DMA; 153 is key support lower
  • Dow (DIA): Close on 10-DMA. Today’s low is pivotal support
  • Nasdaq (QQQ): New high. 275 is pivotal area. 260 is key support level and a trendline
  • TLT (iShares 20+ Year Treasuries): Sitting right below 10- and 50-DMAs. Resistance area is at 166. 163 next big support