Sideways action and quad witching selling. What’s next?

Happy Saturday and welcome to our Weekly Digest! It has been a difficult week on Wall Street as traders had to navigate a sideways market. There has been a lot of misdirection with gap up openings followed by increased selling pressure and a late last hour rally. All this action increased the volatility and all in all we had a poor performance from the main indices which could not recoup last Friday’s losses throughout the current week.

On Friday we had an important options event as the quarterly quad witching took place. We knew from mid-week that there will be a lot of selling pressure on big tech stocks and this materialized on Friday. We had a very poor performance in the $SPY and $QQQ which were also ex-dividend accentuating the selling pressure.

Our portfolio took some small losses throughout the week as we attempted several reversals when the market pointed higher. However, we remained tactical and used tight stop losses to avoid big gushers.

What’s next for the markets?

For the immediate short term, we expect a bounce early in the week as the selling was very aggressive on Friday, and in order for the markets to continue to punish as many traders as possible, a gap up would be the ultimate response. We are currently below the 50EMA for the $SPY which in the past few months has proved to be a great buying opportunity. It is important to make sure that we reclaim this level in order to start a new leg higher. The longer we stay below this level (441.9) the higher the probability we will drift lower as bears will accentuate all the headwinds and more investors will leave the market until the dust settles. We are cautiously bullish going into next week, looking for a strong rebound in the first part of the week. Keep in mind that mid-week we have another FED meeting and the situation may change yet again.

September lived up to its name as a volatile month and so far there are signs that the trend might even accelerate. Stay cool, stay tactical, look for reversals and keep in mind that cash is also a position during these periods. For long term investors, this is just a blip along the way, as the bulls always win in the end. However, as technical analysts we have to measure the momentum, and for the moment we are pointing lower.

Please see below some of the trades that worked well this week and how we approached them. Our best trades were the ones we did not make, as we preserved capital and stayed on the sidelines on many occasions. As we expected we had a decent rally on Wednesday’s Yom Kippur and we managed to profit from that.

$F chart

$F has been a great swing trade for our account as we approached this name on the reversal at 12.66. We have trimmed along the way, but we are still long the stock going into next week. This was a tactical, calculated move after a clear reversal sign.

$NCLH chart

We approached this stock as there was a lot of chatter about a Delta peak in the US and Western Europe. The chart looked very tight and we decided to allocate some percentages from our portfolio to this reopening play. In case the cruise lines will act better in the future, given the availability of vaccines and boosters, $NCLH is in pole position to outperform the market. This stock has been making higher lows in the past few months and it is looking quite appealing from a technical perspective around these levels.

$MSFT chart

$MSFT has been a great swing trade as we engaged this name on Tuesday as it managed to overcome the recent downtrend. We exited our position at 305 for a nice 7 points gain. We decided to take profits because we knew that $MSFT is on the sell side list for the rebalance trade on Friday. Yesterday night, before the close we re-engaged it around 299.8 for a possible bounce next week.

$TSLA chart

$TSLA has been our biggest winner this week as we managed to spot another hammer type candle. We went long the stock and bought options when it was trading around 710. We exited our calls for a 300% profit and continue to hold some stock going into next week. This stock has been on the buy-side for the rebalance and this helped our trade. The chart is looking good, comfortably above the momentum lines despite overall weakness in the markets. A break above 765 really opens up the chart to the upside.

We hope you had a decent week, and even though you may have encountered some losses, you managed to protect your portfolio. We are going into next week cautiously bullish, despite the action on Friday as this was mostly exacerbated by the Quad Witching event. As Warren Buffet famously puts it, Be greedy when others are fearful!

Continue to follow our updates on our social media channels, stay tactical and be quick on your feet in case this recent downtrend does actually turn out to be the beginning of a bigger correction!

Have a great weekend,

The E-Club Trading Team

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