Good morning! Yesterday I talked about the indices being overbought. We were due for a pause in the recent rally. I came in very light and took my day trades quickly as the tape changed early in the afternoon. It was a good digestion day after the recent rally which allows the moving averages to play catch up. $NFLX was a good barometer of the action as it managed to put in a low around 617 and rallied all the way back to 630 in the first 2 hours of trading. There were several good day trading opportunities for cashflow, but one could see that the rally had no strong footing. As a result, I got out of the way, and let my option plays for earnings do the job in case we continue higher.
$TSLA reported last night and beat on both EPS and revenue but it was not enough to boost the overall market. Similar to $NFLX it attempted higher in after hours, only to be sold later in the night, reaching 850. For today, $TSLA becomes the barometer of this market. If it opens down 20 and closes down 40 one can imagine what sort of a day we will have. If it manages to shake off early losses, expect several bounces in the other stocks as well. The Treasury yield is above 1.65% and the Evergrande crisis is back in the news, so the headwinds continue for the moment.
The tech sector did a little sell reversal yesterday as they gapped up and closed below Tuesday’s low. It is not great from a momentum perspective, but after the impressive rally it does make sense. For today, it needs to hold 370-372 in order for the sector to keep the recent uptrend. Within this sector, see if $AAPL continues higher and whether $GOOGL, $AMZN and $MSFT can shake off a rather disappointing session yesterday.
The small caps continue to act well as they are poking their head above the downtrend once again. With the Dow Jones at a new all time high, and Treasury yields high, investors might hide some money into this sector for the end of the year. I have a call spread 230/245 for January in case the $IWM decides to get of out this accumulation channel. The measured move of this year long channel is to 250 in case it materializes.
$TSLA posted its best ever quarter but it was not enough for investors to drive the stock past its all time high of 900. Labor and chip shortages continue to play a role in the supply chain. For today, see how it opens, and whether it can find a bottom in the first 10-15 minutes to trade against. The first support area is 840-843 around its 8EMA. The next big area to consider is 821. It might be noisy today, but keep it on your radar for overall market sentiment.
I hope you managed to book profits in the past week and are watching the action less invested. For today, with futures down, see if some of the strongest names from yesterday, such as $AAPL can offer a red-to-green cashflow trade. Other than that, I would rather wait for more earnings next week before committing more capital to this type of market. $SNAP reports after the closing bell. I have a call spread 78/85 in case it decides to make a new all time high. The previous earnings season, $SNAP had the most solid report out there. Watch how the other social media stocks react to this report and if good earnings continue to be sold.