Monday’s afternoon reversal in the indices was a good opportunity to put some more capital to work and therefore increase your risk. Yesterday’s open was uneventful at first as investors waited patiently for Mr. Powell’s testimony. Despite some back and forth action, indices held the support areas mapped out yesterday and dips proved to be yet again good entry points.
By the end of the day, the tech sector outperformed the S&P. Within the tech sector, we had a broad based rally, with growth tech leading the FAANG type names. This 2-day action in the overall market is constructive and generally leads to at least a third day up. However, today we have an important inflation reading before the opening bell: the consumer price index. Economists expect an increase of 0.4% for December compared to the previous month. A much hotter number will be detrimental to the recent rally as analysts will re-evaluate Mr. Powell’s options for faster tightening and more interest rate hikes. In case we have a softer reading, we may expect more of the same action.
We managed to start the week on a strong foot for our portfolio. Buying Monday’s dip and starting to trim yesterday, allowed us to recoup the losses from the first week of 2022. We are beginning to be more cautious at this level, and are trying to hedge against a possible ‘hot’ CPI. In order to accomplish this, we have sold some more calls against our $AMZN, $GOOGL and $TSLA options.
With futures flat this morning, our focus will be on several stocks that managed to reach their exponential moving averages and are looking to get above them: $AAPL, $TSLA, $FB.
$AAPL managed a strong rally late in the afternoon and poked its head above all the moving averages for the first time in the past few sessions. For today, this stock will be an important sentiment gauge for tech stocks. For the bulls to remain in control, it needs to stay above $174. The next big resistance area is $177-9.
$TSLA offered us another good day trading opportunity yesterday as it formed a double bottom around $1040. We went long the stock around Mr. Powell’s testimony and exited the position just below $1070 for a 20 points rally. We still hold the $1100 calls for this Friday in case it has a bigger move to the upside. For today, it needs to stay above $1070 in order to re-build above the moving averages. The next big resistance area is $1094-1100.
$FB continues to be difficult to day trade. Yesterday it was the strongest tech stock off the open and pushed above $330. When the indices started to recover early losses, $FB lost steam and drifted lower, making new intra-day lows. In the last part of the day it managed to stage a rally and closed near its highs. We went long the stock overnight as it is once again sitting at its exponential moving averages. A move above $336 today will confirm the beginning of a new active sequence. For support, $333 is an important area to defend.
Watch the first reaction to the CPI reading 1 hour before the opening bell. In case we have an in-line reading, one can expect some sort of continuation to the upside. Look at stocks that are flirting with their exponential moving averages for a potential move higher.
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