We got what we expected yesterday and a tactical approach was the right way to do it. I hope you did not give back too much of your gains as it was a difficult tape. Tech was weak but the $QQQ closed near the 8 day EMA. Seasonality would say that we should get a Thanksgiving and Santa rally, but with the indices and the ETFs being inflated in the last weeks it is something difficult to happen. The $SPY on the other hand posted a nice green hammer, which should offer an upward continuation today. The banking sector was strong yesterday, which produced some cash flow for our $XLF calls, so the tech sector was hit. It was a good idea to have a hedge in the banks as the cash flow there absorbed some losses in the other sectors. We followed closely the $XBI yesterday and in the early afternoon it finally made a reversal, and we were there to catch it. This is good news for the biotech sector as it has been decimated for the last month.
The $QQQ had a range trade, between the 8 and 21 day EMAs, with a slight pop in the morning, which has been sold off. The fact that it stayed between these two lines made me weary to stay invested in tech, and therefore I have no common stock, just some long term options in some tech, which I have had for the past month. I am the lightest in tech options I have ever been due to the impressive move it had from October. I am looking to get involved again if the $QQQ can get and stay above $400.99, for an end-of-the-year rally. This is a difficult range to trade as it can get choppy and cost you capital.
As opposed to the tech sector the $SPY has never been so extended, it was in an active sequence in which it just slowly pushed higher, never being very detached from the 8 day EMA. Yesterday it closed just above the 8 day EMA and posted a green hammer, which made me buy some call options for the end of this week and for the end of next week. The investment was modest and a good way to create some cash flow with minimal risk. Another positive for the $SPY is that when it got close to the 21 day EMA yesterday it quickly rebounded and pushed above the moving averages showing relative strength. It helps that banks are quite strong with big retailers like $WMT and $COST, therefore they keep this ETF above moving averages.
This biotech ETF has been quite painful to trade as it continued to slide for the past 3 weeks, as it filled the gap at $116 yesterday and reversed. Until this reversal we suffered some small losses because seasonality dictates that this sector is quite strong from November to January, so I got involved too soon from last week. However, when it reversed yesterday I added a large chunk of call options for this week and the next and I got paid towards the end of the tape. I trimmed some and I kept the majority for continuation. When it came back from its free-fall to $116 I added more options and I trimmed when it reached and surpassed Monday’s low of $119. If you have small bio companies yesterday was the day to add, when the $XBI did the reversal and you should be able to trim in the next days, if the reversal is real. I am still on my toes with this ETF as it has been very weak and it saw large money outflows in the past months.
This week has been hard and it has been just 2 days, and I believe today will be the last day with volume in the markets, as people will go and celebrate Thanksgiving with family and friends. I recommend for you to do the same, even if we’ll have a half day on Friday. I don’t plan to over-trade today and especially on Friday as volume will be very reduced and this can create wide swings in which you can get hurt. I am focusing more on the biotech sector and possibly on $TSLA to see how it acts after Musk managed to sell another large chunk of stock yesterday. Don’t get sucked into trading $TSLA’s wild ranges, if you want to participate you can look to buy some end-of-the-year call options on weakness. This is the maximum I am looking to do with regards to this stock. I will also look at tech to see if it continues to be weak and maybe, but maybe, I will buy some lotto calls for $AMZN for a possible ‘Santa rally’. If you took advantage like I did of the huge active sequence in tech don’t get greedy and keep mostly cash as your position, and look for day trades rather than portfolio type approaches. Be tactical and prepare for a weekend of relaxation and immerse yourselves in the holiday spirit. It has been a difficult and demanding year, detach slowly from the markets, as they will be there when you get back. Eclub Trading is going on holiday from tomorrow and therefore there will be no Daily Charts until next Tuesday, so for any help please follow Twitter, where we try to give you important updates from the road.
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