Red Tuesday

Good morning!

We had a difficult day yesterday, but being prepared mentally and with technical analysis we weathered the storm decently. I have emphasized that tech is extended and that we needed a break. I was very tactical yesterday, and even if it was a difficult tape I managed to keep my earnings from last week and suffered just a few paper cuts. I hope you followed $TSLA and created some cash flow, as well as $F. $AAPL was strong but then it retreated along with the $QQQ, therefore I hope you did not chase it. I entered very light last night anticipating a further move lower this morning. As expected the $QQQ and $SPY are weak and may drift lower, considering what an aggressive move up they had in the last month. I am looking for a red-to-green trade in the strongest stocks from yesterday but I am in no rush to get onto the carousel. I would suggest waiting for market discovery today and for a 15-30 minute low to have as your guide.

$QQQ Chart

The aggressive red candle in tech yesterday got me out of most of my longs in tech, as I wanted to book profits rather than suffer losses. It may have seemed like a sharp drop from $408.71 to $399.19, but it did not even touch the 8 day EMA, this is how extended this ETF was. The first reaction to Powell’s re-nomination as FED chair was positive, then a sharp drop followed, then we had a breather which helped me get out of tech with just small losses. These were actually not losses, just smaller profits than the morning. I did not participate in the closing of the market gusher, and therefore today I am comfortable in trying red to green trades. The whole idea is to know your levels, when to get out and stay away from a faulty action. I hope you read the Daily Charts yesterday and used advice on being tactical and cautious.

$F Chart

Even in yesterday’s gusher we had a winner, $F, which made a new yearly high of $20.79 and I was there to take profits. I am smaller today and I am looking to see the action in the $SPY and overall market, if there is room to add for Day 2 continuation. Take care and don’t get overly bullish until you see the market situation overall, there is no need to give back yesterday’s gains. I would like Ford to stay at around $20 level, and worst case scenario to go a bit under the 8 day EMA $19.74 and rebound from there. If it goes towards yesterday’s low it can seem like it does not show continuation and I will be out of it. A good rule of thumb with $F is to buy only into weakness, as a 7% gain in one day it is quite rare in this stock and jumping the gun buying too much of it at high levels can be painful.

$XLF Chart

The banking sector has been obliterated from the middle of November, but the news that Powell is continuing to be FED Chair, this gave a positive signal for this sector. He is more hawkish with tapering and this is good news for the banks as interest rates will start to rise sooner rather than later. I picked up some call options for this week and trimmed into yesterday’s move up. However, it had a move above all moving averages and then it retreated under the 8 and 21 EMAs. Banks should also be bought only into weakness and I waiting today for market discovery in the sector, but when tech moves lower banks should get stronger. Watch the $XLF above $39.96 and see if it holds above this line.

Today is a price discovery kind of day and I am urging caution and less action. I recommend waiting for price discovery. Don’t be stubborn as you could take a falling knife before you realize and it can hurt your portfolio. I am light and tactical and open to all possibilities, and I believe this kind of elasticity is required on a day like today. It is better to go into ‘day trading mode’ rather than ‘portfolio mode’ and book some gains as you go. Follow our Twitter account for important updates intra-day as we are following closely the macro situation for a better feel of the overall situation. When there is frothiness with the $VIX (volatility index) above $20 any sharp move can take place and catch you in a twist.

Good luck!

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