The slide late on Tuesday was obviously not the way the bulls wanted to end the last day of the third quarter. But was the weakness really that surprising? Sure, we've witnessed some unbelievable moves in names like GoPro (GPRO), Ambarella (AMBA) and Mobileye (MBLY). And the persistent dip buyer that's lurked beneath the market in tech stalwarts Intel (INTC), Microsoft (MSFT) and Cisco (CSCO) has been nothing short of impressive. But what about the rest of the market?
We'll leave small caps out of it for now, since everyone already knows they're lying face down in the gutter. And forget about any company that extracts nearly any commodity out of the ground, as they can't catch a bid to save their life. Let's look at a few groups that have weakened materially, but are still rarely discussed.
The auto parts companies have been under fire for the past few weeks, but most traders didn't notice until Ford (F) updated investors on their business a couple days ago. Names like Lear (LEA), BorgWarner (BWA), Dana Holdings (DAN) and Tenneco (TEN) have been destroyed.
A number of big-name industrials have been on the decline over the past quarter as well. Names like Eaton (ETN), Fluor (FLR), Cummins (CMI), Rockwell Automation (ROK) and Dover (DOV) all declined between 18% and 11% during the third quarter. Those are some seriously large declines!
Another group that suffered over the past quarter are home builders. The ETF I use to track the sector is the iShares US Home Construction (ITB). While it declined a bit more than 10% during the quarter, a number of the individual components performed far worse. Hovnanian (HOV), Lumber Liquidators (LL), KB Home (KBH), Owens Corning (OC), DR Horton (DHI) and Toll Brothers (TOL) all fell by between 28% and 17%. Again, those are some painful declines.
We could review a number of REITs, a few consumer discretionary names and even select staples. But there's really no need. The bottom line is, the daily chart of the S&P 500 has done a marvelous job covering up some pretty serious selling over the past few months.
Now that you're probably a bit depressed from reading my take on the third quarter, let's jump into something more exciting. And what could be more exciting to day timeframe traders than GoPro?
In case you've been hiding under a rock for the past week, GPRO has exploded higher to the tune of more than 35% in six trading sessions. Suffice it to say this maker of a camera on a stick has morphed into a classic and utterly epic short squeeze.
The most important thing to observe on the chart above is that GPRO came into balance during Tuesday's session. This is important because for the past week, and a number of days not shown on the chart above, we've lacked upside excess/symmetry. Put another way, price had not yet auctioned to a level where buyers backed away and demand declined. This appears to be changing.
Understanding that "balance" does not mean "bearish" is more important than recognizing when an instrument is coming into balance. Balance simply means that for a specific timeframe -- in this case a multi-day 30-minute chart -- supply and demand have begun to come into balance. For the active trader, this means we may finally see an increase in two-way volatility as GPRO auctions back and forth in an attempt to establish a more defined area of value.
As far as the day timeframe trader is concerned, initial reference points would be $96, $93.15, $90 and $85. As long as value remains beneath $96 (note how volume dried up above that level), my baseline expectation would be for two-way trading between Tuesday's $93.15 value level and the low volume area near $85 from Monday's session. A value shift above $96 sends the current squeeze into overdrive, while a slide through $85 brings into play the lower composite balance area from Sept. 24 through Sept. 26.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at firstname.lastname@example.org or posted to my twitter feed @ByrneRWS.