Santa’s rushing to deliver presents

Good morning!

We are all ready to dive into the holiday season, and we can use the profits generated in the last two days to buy some presents for our loved ones. We had a small rally forming and the signs point towards a continuation into the end of the year. I trimmed into strength yesterday and got lighter for today, since it is the 3rd day up. The old rule says three days up you leave trailers, as you may get a digestion period. However, at the same time we just managed to get above the moving averages in both $SPY and $QQQ so there is no reason to be flat. Now I would wait again for market discovery and see if the dip is buyable. Futures are flat as I am writing this piece so we have to wait and see the action at the market open. I left trailers in $AAPL and $MSFT, I am out of $FB stock since it performed poorly yesterday (but I have call options for January) and I have a small position in $TSLA. The latter has been a rockstar yesterday and since it is my favorite stock to trade it was a lovely Christmas present for me.

$SPY Chart

When the $SPY went above the 8 and 21 day EMA at $463.8 I was a heavy buyer at this level and trimmed all the way to $467. This was a good source of cash flow for the day. I am out now because we had 3 strong days in the $SPY, but I am looking to buy on a dip since the $SPY shows signs of strength and resilience. When in doubt you can buy $SPY, if the backbone of the market holds above all moving averages the trend is to the upside. Instead of going stock specific it was easier for me to buy the ETF and watch its levels. This is a good thing to do when you have too many stocks on your plate and it is difficult to watch them. Today the $SPY should hold $463 if it is strong, and it can possibly go toward the all time high, but we may also need a breather, therefore don’t rush into buying.

$QQQ Chart

The tech sector showed continuation yesterday and it managed to get and stay above the moving averages, at $390.92. When the $QQQ was not rejected again at $390 I was a buyer of $AAPL and $MSFT and trimmed into resistances, for a healthy cash flow. I also tried $FB which did not work, so I exited the stock and bought some call options for early January. Action has been quite specific in the tech sector, with some clear winners – $AAPL, $MSFT, $NFLX, $GOOGL-  and some unfortunate losers –  like $FB, $AMZN and $TWTR. This is why sometimes it is easier to buy the ETF rather than go stock specific, especially in a reversal type of play. If you would have picked one of the losers you would not have participated in the upside reversal. Coming back to the $QQQ today it should hold around the 21 day EMA of $390.92 for continuation.

$TSLA Chart

Last but not least, we have $TSLA, which has been the clear winner of yesterday’s action. Since the reversal at $894 it has managed to push above all moving averages – $1002.50 – and then some, until $1015. I was a buyer at $1002 and I trimmed close to $1015, leaving just a trailer for today, together with some call options. The move in $TSLA has been quite aggressive but at the same time it is above all moving averages, so I took the decision to have very little stock, but to participate with some aggressive calls for today and next week, in case it decides to push towards $1050. By having options your risk is limited, but you are constrained by time, so you have to pick your battles. Since Musk (probably) finished selling his stock it should recover closer to $1072 in the near future as it is the strongest EV stock on the market. It should stay above $1002.50 if it is any good, don’t stay in it if it does not manage to stay above the moving averages because it is a very volatile stock and it can be down 3-5% in a day. There’s no need to catch a falling knife before Christmas (or ever).

What can I leave you with before Christmas? It has been a difficult December, with ups and downs, with faulty action and aggressive rotation, but the $SPY is finally hanging above all moving averages. This is a strong signal that the US market is resilient in this harsh environment, therefore a correction may be further away than anticipated. These yo-yo moves managed to squeeze both investors and shorts out of the positions, and then capitulation ensued, with a final move to the upside. If you tried to catch the trend too soon you may have experienced losses, but if you did not fight the trend you have emerged with a green portfolio before the holidays. It is always easy to analyze with 20-20 hindsight, so don’t beat yourselves up if you made mistakes. We all do mistakes, but if we learn from them we sharpen our edge and come out better. In the face of chaos don’t join the mood, keep a clear head and use cash as a position in order to be able to see the trend forming. Therefore when others become fearful or capitulate, you can be one step ahead and be ‘greedy’. If you use technical analysis you can trade against levels, which can give you guidelines for some calculated losses. If you respect those levels the probability of you being a winner is higher than just throwing money at stocks hoping for a bounce. When you manage to minimize your losses this is when you can become a consistent trader.

The next period should be one of reflexion for everyone in order to clear the head and feed the soul. Even if the next week is open for trading our services will be ‘on holiday’ as everyone needs a break for relaxation and inspiration. Go spend time with family and friends, play in the snow or in the ocean, do whatever makes you happy, so you can come back to the market in January refreshed and relaxed. It has been a complicated action in the market this year but if you choose to see it in a positive light this can be like a lesson to be remembered. Nothing negative happened if you look at the indices, but all of this rotation and macro news have been hard to digest and transform into winning trades. Discipline is crucial when trading and this year it has been even more required since there have been multiple moments when fake moves took place and if you would have insisted one way or the other you would have been on the losing side. I hope that I managed to guide you in the last few months and offer you some insight into how to avoid some negative situations. Don’t dwell on the negatives, but learn from your experiences. The good news is that the market is like a clean slate everyday, so there is always a chance for you to learn something positive and create cash flow in any situation if you have the tools in hand. I will write to you all again in January 2022, so I would like to thank you for reading my column and to ask you to send me any questions you may have at [email protected].

Happy holidays and New Year!

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