Good morning and happy new week!
After the choppy downwards move we weathered in the previous week we have a sea of red ahead of us this morning. With the Hang Seng index down 4% there is a downward pressure on futures in both the $SPY and the $QQQ. With Quad Witching together with ex-dividend in SPY we could expect a red to green move today. Our focus will be on the stocks showing relative strength last week in order to see the market sentiment. Our recommendation is to take today’s tape slowly and wait for market discovery, until a trend is clear. As I like to say: “the trend is your friend”.
The $SPY touched the 50 EMA day on Friday and it closed below it. The trend is downward which makes us cautious. When the backbone of the market is bending expect the other major stocks to follow. $441.92 is the level to watch and if it touches it again and it goes up, we can slowly start to put some money into play. However, we can also expect a sharp tree shake and a move to $436, which will clearly show us the bears are in control.
Big Tech looks better than the $SPY but the bar on Friday went through the 8 and 21 day EMA, so the same downward move can be expected. Everything looks bearish in this set-up too, but if $369.91 holds and it pushes up we can interpret that the bears are losing momentum, if not expect a sharp drop again, to $368.74 (50 day EMA). There are a lot of ‘if that then this’ today because there is no clear winner yet in this battle of the bulls and bears.
The chart looked healthy in the past week, with Tesla holding above all the moving averages and it was our biggest P&L winner. In a downward move in the SPY Tesla held beautifully. However, this stock was on the buy side for Friday’s rebalancing, and therefore you may see this stock falter also in today’s action. We have a small position in $TSLA as it is above all the lines, but if it goes under the 8 day EMA $749.91 we’ll be stopped out. This is a stock you can try today to see if it holds the upward trend in this sea of red.
This small spec bio has been on our radar for well over a year. This is not a stock to actively trade though, it is better suited for your IRA account. We offer it this morning because it showed the first signs of life on Friday afternoon, with a spike through the 8 and 21 EMA in the last minutes of the tape. Overall it is under the 50 and 200 day and it may take a while to recover, but this may show the beginning of a new active sequence for this small stock. It has a bottom at $2.59 and for a big move up it needs to break through $3.09, the previous medium term high.
We hope we could provide a guiding had this morning, to prepare you for the choppiness and bearish situation in the market. There is a big probability that a downward active sequence may start, but in order to protect your capital today the advice is to wait and see: Patience. Wait for a clear trend to form and then if you are good short take advantage of the bears being in control, if not, cash is also a position.