How I Spot and Trade a Market Bloodbath

Hello, VWAPians!

I tried to warn you.

Whenever I leave for vacation, the market goes haywire, likely because I’m the center of the universe.

Last week was no exception… Because The Warlock is always right, baby!*

*My wife insists I tell you I am not always right

And I could’ve told you by Friday’s late-day price action that stocks might be in trouble again this morning.

In fact, today I’d like to review some of the warning signs that flashed heading into today’s bloodbath, and why you should be afraid if it happens again this week (or beyond).

I’ll also review the futures chart on my radar ahead of the bell each day, and the VWAP break that’s usually a red flag for bulls.

Plus, I’ll outline the 3 things I do when the stock market is sick, and the best “cheap” stock on my Go-To Watchlist right now.

Friday’s Red Flags

As I mentioned this morning on Money Morning LIVE (watch me there at 8:30 a.m. ET each day, just before my LIVE trading hour at 9:30 a.m.), the fact that the Invesco QQQ Trust (QQQ) – better known as “The Qs” – didn’t rally into the close on Friday had me shook, as the kids say.

In fact, it got rejected at the 1-minute VWAP right around midday, and it was downhill from there.

1-minute chart of QQQ from Friday, July 16 – courtesy of Thinkorswim (ToS)

I mean, prior to last week, the QQQ hadn’t ended an entire week lower since early May!

Weekly chart of QQQ – courtesy of StockCharts.com

That’s because the market RARELY goes down, Blanche.

But I know the warning signs when it MIGHT, and that includes not picking up bullish steam heading into the weekend.

This tells me that SMART MONEY IS HITTING THE EXITS… and we should be afraid. Very afraid.

On the flip side, I also warned you before my vacation that when the ProShares Ultra VIX Short Term Futures ETF (UVXY) starts going higher – WATCH OUT.

The UVXY is a derivative of the Cboe Volatility Index (VIX) – which is Wall Street’s “fear index,” and something my pal Mark Sebastian follows closely.

UVXY shares were literally DESIGNED to trend lower, so when I see this exchange-traded fund (ETF) muscling higher, I know the bears are in control.

A third straight week-over-week gain in UVXY this week would be a first since the coronavirus crash of early 2020.

Weekly chart of UVXY – courtesy of StockCharts.com

This Morning’s NQ Warning

For those of you who can’t get enough of the Qs, let me introduce you to the super-leveraged version: E-mini Nasdaq-100 Futures (NQ).

According to CME Group, E-mini Nasdaq-100 futures “offer liquid benchmark contracts to manage exposure to the 100 leading non-financial U.S. large-cap companies that make up the Nasdaq-100. The E-mini Nasdaq-100 futures contract is $20 x the Nasdaq-100 index and has a minimum tick of 0.25 index points.“

As I mentioned on Money Morning LIVE, the NQ’s pre-market break of the 1-minute VWAP – and then its previous lows of the morning – was yet another warning shot for the market.

1-minute chart of /NQ before the open on July 19 – courtesy of ToS

What to Do When Stocks Are Sick

So, what do you do when the market is getting slammed?

Well, there’s nothing wrong with being patient in a volatile market…

But if you’re an eagle-eyed VWAP day trader like myself, you’re also doing a few other things:

• Watching for an opportunity to buy the Qs breaking back above the 1-minute VWAP
• Hunting those clutch earnings reversal patterns
• Circling back to that trusty list of GO-TO VWAP STOCKS

In fact, as some of you saw LIVE this morning, I hit a quick win on AutoNation (AN) after earnings, and the Ocugen (OCGN) 1-minute multiday VWAP reversal paid nicely…

And among my list of go-to stocks, probably the best “cheap” stock to trade on the market right now is Peabody Energy (BTU).

BTU obeys VWAP well, it’s trading under $10, and it tends to move in big percentage gains.

But guess what?

AN? OCGN? BTU? All the same VWAP setup, just different names.

However, keep in mind that as a VWAP day trader – not an investor – I’m not looking to COMMIT to ANY of these stocks – especially in this market environment.

At the closing bell, CASH IS KING for this guy.

Make sure you watch me tomorrow morning, when earnings season REALLY heats up on IBM’s (IBM) numbers… It should be exciting, and I’ve got lots to share!

Talk to you soon,

Kenny “The Warlock” Glick

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Comments

One response to “How I Spot and Trade a Market Bloodbath”

1. Thank you for the info. Your on a roll !!! Keep up the good work.
   Bill Evans

   Reply