Frothy market

Good morning!

As anticipated we are seeing frothiness and volatility in the market, as the indices were extended, and stocks were in a pick and choose program, where only a certain stock from the sector is performing. This whole scenario raised our antennas that there is some faulty action in the market. Yesterday the $SPY and $QQQ curled back under the 8 day EMA, with the tech sector going even lower towards the 21 day EMA. However, we did not have a sell off in the last 15 minutes of the market session, and they have rebounded from their lows. This means they are in no-man’s land, which pushes me to have little to no positions on.

$SPY Chart

After such an impressive active sequence it is healthy for the $SPY to contract and to let the moving averages catch up with it. It only went to the 8 day EMA and a bit under, and there was already slight panicking in the market. The inflation numbers were extremely hot, the hottest they’ve ever been in the past 30 years. The market took this news with strength, and did not break down like a house of cards. I believe now is not the time yet to short this index, rather wait and stay light in positions. See if it holds $464.41 (8 day), if not it has space to go $457.65 (21 day).

$QQQ Chart

The tech sector has been weak(ish) in the past 3 days, with only certain stocks making some different moves, which were soon corrected and came in line. It is normal, this sector had an impressive rally and we rode it all the way to the highs. Now it is time to be light and tactical, and wait for market discovery. The 21 day EMA is at $384.4 and yesterday it managed not to touch it. This could have been a breather period and for the tech to get back to the 8 day ($392.10) or not, since inflation talk is drowning the media. Again I am not looking to short the sector unless it breaks the 21 day and the macro situation dictates it. Stay out of the way and be tactical.

$TSLA Chart

This rockstar stock seemed to have created a plethora of emotions in the past days, with people trying to short it and to be long in it in different scenarios. I told you it is a difficult stock to short and for you to do so you need to be an active trader. I went short with a put bear spread, which I closed at the beginning of yesterday’s tape, with a small profit. Afterwards I went long when I saw it wanting to break above the 21 day, rode it to its highs and got out. Due to talks related to Musk selling his shares to pay taxes, I risked a small bull spread for Friday. This was because if news hit the tape he already sold his shares the chances are $TSLA can recover and push higher. I did not want to risk stock into this frothy market, but I did not want to miss a move higher in $TSLA and therefore I exposed myself with option calls. This seems to have paid off as just a few hours ago the news hit the market that Musk already sold his shares. We’ll see if my spread maxes out. If the situation dictates it and $TSLA goes towards the 8 day EMA $1114 I will try to get engaged with stock, if not I will stay out of the way.

Yesterday was a day full of paper cuts but they did not put me back my whole week, just a day. This is what I am trying to convey to you guys, respect your levels and know when to get out. When the market gets frothy follow the (best friend) trend and stay tactical. You can try to day day trades for a while, just for cash flow, don’t expose your whole portfolio when there is no reason to do so. If the situation changes and the indices seem to absorb this inflation news, which they may have already priced in you can start dipping your toes again. I am very light into the end of this week and I don’t plan on playing defensive or offensive, I am just going in for a few moves. Watch our Twitter for live updates, in case we’ll get involved more we’ll let you know.

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