Dead-cat bounce?

Good morning!

We have had a historical day yesterday, unfortunately in a negative way – Russia invaded Ukraine and is advancing towards Kiev as I am writing this piece. There are around 100 thousand Ukrainian refugees looking for shelter and Russian ballistic missiles have reportedly hit Kiev at dawn. The EU and NATO are condemning Russia’s actions and are continuously threatening sanctions which don’t seem to deter Mr. Putin from his expansionist aims. The US markets have had a classic reaction to invasion day, since it was down around 3% yesterday, but as soon as the markets opened the lows were put in the first 10 minutes and then we had an impressive rally. This happened because the shorts started to cover their positions due to the fact that they had a gap down in their favor. There were two forces that aligned for the market’s recovery from the gap down: investors who considered that the prices were favorable for a scalp, and the shorts who were happy to take their gains. Does this mean that these reversals in the $QQQ and $SPY are the beginning of a bullish active sequence? Not necessarily. We were oversold and this bounce can be just that – a bounce. Today the futures are down, and in order to show that these reversals are real yesterday’s candles should hold half way. If you missed yesterday’s action don’t jump investing into things because the risks are higher with all the volatility and negative news. You can try indices against levels, but I advise caution and patience because we have to see if these bounces were real or if they were due to stocks being oversold.

$SPY Chart

The low was put in the first minutes and then we had a reversal rally, which went over Wednesday’s lows. You could have bought against the lows and trimmed into strength. We have some call options which we covered by selling some calls against them when the market rallied, just to see if the market will hold. Today it should hold $421.35 if this reversal is real.

$QQQ Chart

The tech sector has been more oversold than the $SPY so the rally here has been more impressive. We had the lows in the first 10 minutes also, which was easy to trade. VWAP held yesterday so we bought $MSFT, $AAPL, $GOOGL and $TSLA for day trades. When the $QQQ went over Wednesday’s low and held above it you could have bought against that low of $329.10 for an impressive move to $334.5 first and then to about $340. We took our gains and left only some small trailers. Today with futures down and with such an impressive move we have to wait and see if these reversals were real or just oversold bounces, like mentioned in the $SPY chart.

After a myriad of negative international news, combined with futures down 3% in the main indices we saw a rally which was impressive and easy to trade, especially after the Wednesday’s lows were overcome and they held above those levels. However, the recipe for an oversold bounce was there: the shorts were happy to take profits and investors were interested in very depressed prices. Today will be a different story since we are still in a bear market. You have to be patient and wait for a trend to form. You want to see indices holding half of yesterday’s candles in order for this reversal to the upside to be real. We’ll update you on Twitter with our action along the way, but if the $SPY and $QQQ don’t hold $421 and $334 respectively, we may see a trip downward. The risk-reward opportunities today are not skewed to your advantage, so if you missed yesterday’s move don’t jump to buy things for cash flow. Wait for a trend to form and see if the reversal is real. We are mostly flat today because we have to keep onto your gains since the international situation is very tensed and anything can happen. It is the last day of the week so take things slowly until a trend forms and see if the reversals to the upside are real.

We Grow Together!

Spread the love

Leave a Reply

Your email address will not be published.

Suport Us

Personal Info

Donation Total: $10.00