NOC RTX 

This is Scott with your Chart of the Day. A few weeks ago I was talking about some aerospace and defense names that I was watching, one of which was RTX ( NYSE: RTX ). Raytheon ( NYSE: RTX ) has finally broken out of this downward sloping trendline. Dan Fitzpatrick, at stockmarketmentor.com, actually put this on our Active Trade List, so we are definitely keeping on an eye on this stock right here.

But there is another aerospace and defense name that I think could be close to a breakout: NOC ( NYSE: NOC ), https://optionmarketmentor.com/stockanalysis.html?ticker=noc ( NYSE: NOC ). I believe they put laser beams on the head of sharks, I think that is what they do.

But as you can see from the chart here it is consolidating right near a clear level of resistance right around that 492.00,492.00. It can’t get up, it can’t get up and now we are right underneath 492.60ish.

I definitely think that is a clear level that I would be watching for a breakout out of this consolidation zone. You can see that Northrop Grumman ( NYSE: NOC ) has been going sideways for about 5, almost 6 months here. That’s a pretty nice base, the longer the base, the higher the space.

And so that is one of the reasons that I like this chart and think it is definitely one you should add to your watch list. I am going to set an alert, on my chart here, right around that 492.60 level, and watch for a strong break above that zone coming on volume.

SPY SSO 

I want to talk about the SPY ( NYSEARCA: SPY ) here and this is why. A few trading days ago, last week, you will notice this was on last Wednesday, the 10th, that this was right up against this green dotted line. If you go over there it’s 50 percent. This is a 50 percent retracement, it’s a Fibonacci figure. From the last high, this big high here and then big low.

We can look at these Fibonacci retracements as a way to quantify the strength of any bounce. And so here, this is up 50 percent but this is where it is struggling. By the way, you will notice it kind of struggled here as well. Back here it looked like maybe for a while this might be all that this stock, or here the market, is going to fall down but instead, it kept going.

The most important thing, though, is you don’t really look at this stuff on the way down because you don’t know whether it’s going to continue to go down, you’d draw different Fibonacci lines. But here we’ve got this pretty well intact. And so when this is right up against the 50 you would expect it to pull back.

Well, it didn’t do that for more than a day. It gaps up here and then trades back below and ultimately closes below this 420.92 figure. You can’t really see it here but you can trust me, $420.92 is where the 50 percent retracement is. So this was a bit lower at 420.00.

The very next day, boom, you get this. Now, after this kind of day you would expect, if you are an index trader, you’re short, you are looking to sell this. Instead, boom, this moves higher, it doesn’t even come back to retest the 50, it just gaps up and keeps going.

The reason I am telling you this is because this is a great indication, and it’s really strong evidence that there are still buyers out there. There are still buyers, we get another strong day today. Now, I am not saying that we are never going to get a pullback.

What I am pointing out is, that this is the 8-day exponential moving average, this goofy-looking dark yellow line here. And so as long as the S&P is trading within this range, above the 8-day exponential moving average, this is a trend that is unquestionable. You just can’t question it, it’s trading above the 8-day moving average.

Now, if it starts drifting sideways, then it’s in question. Then you have to look at this resistance line and say, maybe we’re going to get more of a pullback. But for now, this is a stock, this is a market, this is an ultra ETF ( NYSEARCA: SSO ) and we are trading this. It is an ultra ETF that you want to be long. This was something that I got into right as it crossed the 50, we’re up almost 19 percent on this.

It’s a bullish market right now. We’re in a bear market rally, it could reverse at any time. But I can’t predict that and neither can anybody else except the fools and the liars.

TOST 

I want to look at Toast ( NYSE: TOST ) today and here’s why; one of our traders, in the forum today, posted his plan for this stock, which gapped up between yesterday’s close. They reported earnings after hours yesterday so the stock moved a lot. I am just showing you the daily during-hours trading action here.

You will see the stock gapped up from yesterday’s close to today’s open by about 20 percent. This trader that we have, he’s really good, he understands short-term, 59-minute trade tactics, which is what I teach, he understands that very well. He laid out a trade for both the long and the short side.

And you may say, what the heck is somebody thinking about going long on a stock that gaps up 20 percent? And I will tell you why, because it is just the second side of a 2-sided trade, it could go either way. A lot of times you will see these kinds of low-profile stocks make a big gap on earnings and then just keep going.

One of the strategies he was looking for was a gap and run or a gap and go, whatever you want to call it, in this case, I would just call it a breakaway gap. But that is not really what happened. By the way, I’m doing this video and we still have an hour to go in the day, you can see what the time is here. But I wanted to describe this trade, real quick, to the short side. So again, context, 20 percent gap.

Now, let’s look at this stock in terms of VWAP, volume-weighted average price. The VWAP is an indicator that tells you what the average price per share is in trading that day. In other words, volume is a component, it is not just what was the closing price on a, in this case, a 5-minute bar chart. It is how many shares were traded, and at what price. Add the prices together, divided by the number of shares, and boom, now you have your VWAP value.

The idea is, that if a stock is holding above the value-weighted average price, that means there is buying interest. If the stock is holding below the value-weighted average price, that means there is selling interest, the sellers are more aggressive.

But here’s the other thing, when you have a stock that gaps up so much the first print on the VWAP is, obviously, going to be much higher. But what you want to be doing is, watching and seeing where the stock goes after that opening gap.

Here you can see, this is really important, the stock gaps up here. I was watching it, I didn’t trade it, I had a bunch of other stuff to do, I just didn’t feel like watching it. But I was watching it, just curious to see whether the stock was going to go up or down after the open.

Now, it opened at 21.76. The high was 21.76, so the stock just kind of oscillated around here in a fairly tight range. But then starting the second minute, 9:31 or 9:32, what happens? The stock starts trading down and then, ultimately, just about the time it fell just below the first minute’s low of 21.40 it was also below the volume-weighted average price and never looked back for several minutes. You can see here, that it was half an hour before the stock even came back up to test the volume-weighted average price.

You have to have a lot of experience doing this, I make it sound really easy, it’s not easy but it is simple. These are simple, simple, simple concepts. The difficulty is in handling your emotions and handling your bias, your preconceived notion of, whether the stock should go up or should go down. Because if you have a really strong bias one way or another your mind is going to start sorting through things to confirm your bias.

On the other side of the coin, read Gladwell’s book “Blink”. The first 5-seconds of looking at something tell you exactly what you need to know. In that case, this is kind of a “Blink” trade. Once a stock starts trading down you are thinking, hum, 20 percent, a 20 percent move. I wonder, if I held this stock yesterday, would I be selling into a 20 percent gain and saying, well Mr. Market, thank you very much, may I have another? That’s what I would be doing.

And so when you see this confirmation of a like zero continuation on this, a gap up, it never comes back to it, it starts trading down. Your strategy is if you like to short stocks, your strategy is to short the stock, even short it at 21.50, maybe as it moves below the first minute of trading, the low, which would be 21.40, let’s say you are shorting it at 21.38.

Well, lo and behold, just a few minutes later you’ve got a 7 percent gain in this. That is not to say you are going to sell it right at the bottom, but at some point here you are going to start lowering your stop on the trade, you always want to have one in place.

That is the extent of my analysis here. A big gap up, 20 percent. You have got to be looking for the possibility that it is going to be a cap and run but the probability that it is going to be a gap and crap and fall down. That is what we have here. I just wanted to point that out to you. I think it was kind of a good spot by Alex to be seeing this trade. And in this case, it was a great trade to the downside.

What happens next with this? Well, nothing you want to worry about because, after this kind of move, I will tell you one thing, there is a lot of pain in this chart. And what I mean by that is, anybody who bought where it is right now, if you bought above where it is right now, you are in pain. Because you got sucked in and now you are hoping to sell on any kind of a rally or you are giving up the ghost and just selling anyway.

I am expecting this stock to consolidate for a long time. It is certainly not a trade that I would be interested in taking now, but at 9:30, 9:31, 9:32 this morning, this was a monster trade.