Santa found his elves

Good morning!

As the old tale says: the trend is your friend. If you did not have FOMO in pre-market and during the first hour when the levels pointing to the downside you managed to stay elastic and see the reversals to the upside in both the $SPY and $QQQ. When both ETFs pointed in the favor of the bulls’ control I started accumulating, as I mentioned yesterday, and I trimmed into strength. It is a difficult market which washes out enthusiasm if you find yourself on the wrong side of the trend, and if you don’t respect levels. Only if you use experience and technical analysis can you navigated this action. For example when the $SPY went back under the gap you could have shorted against it, and then turn 360 and buy long. This is why I advise waiting for market discovery, nothing is written in stone and macro news is very important in this environment. President Biden’s speech also helped alleviate investor’s anxiety with regards to Omicron, as he assured the nation that the US has the weapons against this disease and there are no further restrictions on the table. The ending of yesterday’s tape was one of the strongest in the past weeks so I am quite invested in certain stocks for continuation. However, I trimmed into strength in order to protect capital and to have room for today’s action.

$AAPL Chart

Apple is representative of yesterday’s action in the tech sector, and therefore a good example to dissect. If you were invested in this stock from Monday the right approach was to trim in pre-market, as it had a gap up. If you did that you could have been a buyer closer to its 21 day, with a stop at $168.35. If you had FOMO and bought high this first move down would have taken you out of the game for a significant loss, which would have made you miss the stock going back over the 8 day EMA of $172.48. I waited patiently like I told you to do, and I managed to make a hefty profit from this move up. I trimmed more than 40% of my stock into the move above the moving averages and left the rest for a move higher today. If today gives continuation to this Santa rally $AAPL should have no problem going toward $176.75, maybe not in one tape, but this is a new resistance to watch.

$FB Chart

I mentioned yesterday that if the $QQQ shows strength or signs of recovery to the upside I will be a buyer of $FB. I bought $FB after the $QQQ went above the 50 day EMA, and I was in a 10 point ride which created a generous cash flow. $FB was one of the most beaten stocks in the tech sector, even if its involvement in the Metaverse should be an incentive for investors to park some money for the long term. However, I am a day trader and my approach was different. When the $QQQ was weak $FB showed relative strength and it kept its 200 day EMA. I bought $FB at around $326.47 and I trimmed when it went past the 8 and 21 day EMAs. When I saw that $FB is trying to break the 50 day EMA I added and I trimmed closer to $336. I also bought $330 call options for this Friday, for a double winner, and I trimmed all the way to the highs, with a small trailer left, which I transformed into a spread by selling $335 calls. The calls sold covered the cost of my bought calls since I sold them into strength, and therefore the cost is zero, for a possible profit of $500 for each spread. I had a clear mind, with nothing to lose in this stock which has been crushed, and had its lows very close to the level at which I got involved in. This left me with plenty of opportunities for a possible move to the upside.

$TSLA Chart

This stock was weak in the morning, similar to the $SPY move, and it woke up when it made a reversal at $893.39. It was a frustrating stock to be in if you were a buyer at the market open, since it looked like it was going straight over Monday’s high, when it actually crashed right under Monday’s low. This is why I advise not having FOMO on a gap up kind of day. I waited for market discovery, and when I saw that $TSLA is trying a reversal I got involved in both stock and option calls, with a stop at the low of the day, which was in close vicinity. This way my risk was minimal, but the possibility for a profit was increased. When it went above Monday’s high I trimmed both stock and options, but I left a large portion for today’s continuation. I also read this morning that Musk might have finished selling Tesla stock for tax purposes, so we might have a push to at least $953.75, which is the 8 day EMA.

I might have sounded a bit judgmental in today’s Daily Charts, but the whole idea is not to come and say: ‘I told you so’. I hope you read my column yesterday and pushed the break on buying into the gap up, since the market situation is nowhere near the 2020 environment, when we were buying high and selling higher, with an incredible easiness. With inflation, tapering and Omicron worries the market is more difficult to navigate and therefore having an edge is a must. I am not advocating fear or to turn bearish, but to be more tactical and wait for market discovery. Today we might get a red start in futures, which is not a negative thing, it is normal to experience some profit taking, but watch the levels and see if they hold. We have two days left until our Christmas break, so don’t try to make up any losses you may have incurred in such a short period of time, but follow the trend. By following the trend you’ll be in a key position to generate cash flow and to position yourselves in the right way for the market. The power is in your hands and there is no evil spirit moving the market, just you and your fellow traders, so listen to the trend and act accordingly.

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One thought on “Santa found his elves

  1. Very insightful and helpful recommendation to jungle the volatile state of the markets. I must say I followed your recommendations with great success yesterday, erasing some of my previous days losses.

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