Bent but not broken (yet) – Falling Knives edition

Good morning,

Yesterday we had a gap down after a long weekend. US equities traded considerably lower off the open and most attempts at recouping losses were quickly sold. There were a few names that offered good trading opportunities such as $TSLA. The EV juggernaut showed relative strength early in the session and was the first to go green. This was also our best trade of the day, and we hope you followed it from out Twitter account.

In terms of the overall indices, the tech sector managed to defend the monthly low around $369 and has formed a double bottom for now. With futures down this morning, see if it manages to reclaim this level fast, or if this will become a resistance area for the future. The $SPY drifted lower than the monthly low in part because of weakness in the financial institutions after disappointing earnings results.

The main force driving tech and the overall market lower this week is the increase in the Treasury yield, as this has reached already 1.88%. Analysts were fretting about its impact on growth and tech stocks from last year.

The main catalyst for the next period will be the quarterly earnings results from the big tech companies which have a heavy impact on the overall market.

We continue to be extremely light going overnight and prefer to day trade instead of keeping risk on. When stocks and indices are comfortably below the exponential moving averages there is no need to fight the trend.

With futures down again this morning, we will look once again for tactical moves and possible reversals. We will keep an eye on $TSLA which showed good relative strength yesterday, $MSFT after its deal announcement with Activision Blizzard and $AAPL which is always a good barometer of overall market conditions. We did take some $BA overnight as it is one of the few stocks above all moving averages.

As a flashback to 2021, ‘meme’ stocks are starting to act better when everything else fails. $DWAC and $PHUN posted decent candles as they are once again perky. Difficult to trust though and would not recommend spending too much capital on them.

$SPY chart

The overall market continues to be heavy and looks like it is heading lower. Yesterday it broke below the monthly low and could not bounce off it for now. With futures down this morning, see if it can reclaim yesterday’s lows for a tactical day trade. If not, $450 is the next support area. If one were to look at the weekly chart instead of the daily one, there is plenty of room to the downside for now.

$QQQ chart

The tech sector managed to defend the monthly lows by a thread but looks extremely vulnerable. Tech giants such as $MSFT, $AMZN and $FB are utterly broken from a technical perspective and will need a lot of rebuilding. $AAPL and $TSLA are still keeping some momentum but it will be difficult for them to remain elevated in the current market. For today, with futures down, see if $369 holds or gets reclaimed for some day trades only. The path of least resistance is still to the downside until we see a clear reversal sign or if earnings later this month do show good growth potential. Apart from the actual earnings, one has to look at the guidance for the rest of the year.

$BA chart

Boeing started a decent active sequence and managed to poke its head yesterday above the recent downtrend. We are long the stock with a stop around $222. It will be difficult for this company alone to outperform the market if we continue lower, but keep it on your radar if value/cyclicals catch a bid. There is some space on the chart to $234 should this trend continue.

2022 started on the wrong foot for a multitude of macro reasons. Sentiment has turned negative fast and it seems that most analysts expect a bigger correction in the foreseeable future. However, when most pundits expect a bigger drop, be on your toes for a possible reversal which may brake this current trade. As Buffet correctly puts it, be greedy when others are fearful. I do not believe we are there yet, but make sure not be overly short in the current market conditions. Keep an open mind and take each day as a new opportunity and measure the possible upside/downside scenarios based on technical analysis. Cash is also a position!

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