New variant detected, tech at inflection point and earnings season around the corner

Good morning fellow traders and welcome to a new week on Wall Street! It has been a difficult start to 2022. Investors were eager to buy the open on Monday but soon enthusiasm faded in part due to the hawkish minutes released by the FED. As a consequence treasury yields spiked to 1.76% and pressured all growth sectors with a particular emphasis on high beta tech.

Over the weekend, news of a new possible coronavirus variant hit the tape. Cyprus claimed to have found a new variant among its population which combines Delta with Omicron. Given the extensive amount of testing done in Cyprus (people are tested every 48hours), it will be interesting to see how the story develops. For Wall Street a new variant, which is still in its early days might pressure again some re-opening stocks and sectors. But, from my perspective we have played this game quite a few times already, and the more variants there will appear, the less the market will react to them unless they are game-changers.

In terms of our portfolio, we have managed to trade a few bounces on Friday. $MSFT, $AAPL and $FB were good opportunities to buy in the first half hour, but one had to be quick to book profits. I believe that this will be the case for the next few sessions until the dust settles.

The weaker than expected Jobs number on Friday did not help the tech sector as much as analysts expected. This is not very surprising. The FED is not likely to change its policy based on just one reading of the Jobs market. In addition the lower than expected unemployment percentage speaks to the contrary.

Currently, futures are flattish with a slight positive skew for the Nasdaq. We are still long some $AAPL, $FB and $MSFT which we bought at the close on Friday for a possible bounce. We will look to exit this trade either in pre-market or soon after the opening bell.

Our focus today will be on the $QQQ to see if they defend a key level. In addition, we will keep an eye on semiconductor stocks, which have acted poorly recently. With news of a new variant detected we will try to buy some cruise lines and airline stocks in weakness should this occur.

$SPY chart

The overall market continued to drift lower on Friday and reached its 50 EMA (green line on chart). For today, the first support level is 464.65 with pivot resistance at 469.20. A move below Friday’s low can lead to a quick drop to 450, as there is not big support until that area on the chart.

$QQQ chart

The tech sector has been under pressure for the past 2 weeks. It has reached a very interesting point, touching 378 on Friday. On 2 separate occasions in the past month it has managed to bounce off this area. The general rule says that a double bottom is healthy and leads to a sustained rally, while a triple bottom usually leads lower. The more times a stocks plays with a support level, the higher the probability it will break it to the downside. So, for this week, make sure that the $QQQ defend this area!

For now the path of least resistance is to the downside. We are approaching oversold levels in the Nasdaq so make sure to participate in what may be an oversold bounce which can generate good cashflow. Watch $AAPL, $MSFT and $FB for clues to the magnitude of such a possible bounce. Do not overstay your welcome and make sure to book profits quickly as we are way below the exponential moving averages for most stocks and indices. Continue to follow our updates on Twitter!

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