Pre-earnings run?

Good morning!

We seem to have had a different kind of move in yesterday’s tape. The $QQQ and $SPY were in a slow up-trend, hard to trust, but in the end they did not go for sale again, like in the previous tapes. Did this make us bullish? Not really, just slightly hopeful that the pre-earnings run may start. The $VIX was also down considerably, which showed that volatility has tempered. Until we see the indices get stronger we stay tactical. $JPM beat expectations but it went down as predicted, we’ll see if it recovers today, however, if banks stocks are being sold this could mean an upside opportunity for tech to be bought.

$QQQ Chart

Big tech had a shy attempt at breaking the downtrend, but it ended up with quite a thin doji, albeit above Tuesday’s levels. Should tech prove to be recovering I want to see the $QQQ going to $363.20 and stay there or above. It is a long road until $365.15 (50 day EMA), which would place it above all moving averages, and therefore you need to be tactical until the index shows it is healthy.

$SPY Chart

The $SPY was even weaker than the $QQQ and I believe this is due to the poor reaction in the banking sector. It barely managed to close above the 8 day EMA and it did not top Tuesday’s high. Take care when the back bone of the market is having difficulties to get out of this downtrend, because until it shows relative strength we can always encounter air pockets and slide lower.

$IWM Chart

The small caps seem strong and healthy, like they are ready to get out of this flat trend, as it closed above all moving averages. Today you may see a strong day in small caps, with the Russel possibly reaching $224.11 or higher. If this happens it shows the market is strong and health as usually the small caps are the first indicators for a down or an up move. I will buy some call options for next week in order to see if this action has any continuation for some cash flow.

I only discussed the indices again today because I believe it can be a pivotal moment for the market. The CPI numbers were only slightly higher than expected, the market held it levels and the reaction was somewhat positive, and the next catalyst is the earnings season. In my opinion we may have the beginning of an active sequence, but until these three indices are healthy and above all moving averages I will not dive with my capital into this turbulent sea. Stay tactical and wait for clear signs of recovery until you commit your cash. It can be a fast and furious move to the upside, unexpected by all the people who kept shorting these moves, and we may see a squeeze in shorts, which can give the indices the impulse they need to wake up.

Good luck!

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