I would first like to wish you a happy week and Columbus Day! We’ll have a low volume kind of tape today as bond markets will be closed. Today’s action will be more limited than usual, and therefore some big swings in stocks should be taken with a grain of salt because they may not be displaying the reality. Usually on low volume days I am more careful when trading because the next day when volume comes back the previous moves may be erased. Traders will be at their desks today but we have to watch volume in order to see if the change in the respective stock is true. I was disappointed yet again by the sell program displayed at the end of Friday’s tape and therefore I got out of all my stocks, minus $F. I am waiting patiently to see if the tentative upward trend started on Thursday will hold.
The $SPY managed to hold its gap on Friday, but that was about it. Unfortunately it closed under the 21 and 50 day EMA, which made me weary to stay invested. Watch today for $437.19 as pivot support and $439.99 as resistance. Ideally if the latter happens to be conquered the $SPY should climb up to Thursday’s high of $441.98. If this upward trend happens I will get more invested for a possible pre-earnings run. If the $SPY loses the pivot support we may go back to the woods, and slide lower. Wait for 30-50 minutes market discovery.
Big Tech has been for sale, as mentioned in my last few Daily Charts, and unfortunately this down-trend has not been broken on Friday, it has been reinforced. The Nasdaq had two major head winds: Oil at its highest price since 2014 and high treasury yield. Today it needs to defend $360.61 and if it does, it will have $365 as resistance. If it shows resilience and if it has any muscle memory from Thursday’s feeble attempt to reverse out of this downtrend the $QQQ should manage to go to the 50 day EMA and stay there, if not conquer it. This whole inside action made me get out of all my tech longs awaiting a more clear trend. We have earnings next week and I will buy some call options for the big tech companies, but I did not want to lose premium by buying them too soon. Ideally today we should have a reversal in tech, for a usual run into earnings, and leave this downtrend behind us. Again, wait and see, take the tape slowly.
Because it is Monday and I would like to give you a complete image of the market I chose the small caps as my third chart. The $IWM did not escape the sell program on Friday’s afternoon, however it performed quite well. The big red bar does not see to show the same story, but the overall point is that it held Thursday’s low and it closed above the 8 day EMA. Ideally I would have liked to see the small caps above all the moving averages, but the fact that it defended the previous day’s gain gives me a small signal that the market may be in recovery mode. $221 should be your pivot support and $224.95 your pivot resistance. For the $IWM to show real strength it should get and stay above Thursday’s high, for a bull flag to form.
I have been telling you this mantra “take things slowly and wait for market discovery” for the past two weeks because this was your only defense for your capital. When the market is in side-ways action and it goes up and down, the only thing that happens is that you bleed money for no reason. What I have been trying to get you to do is to just dip your toes into some things for market discovery in case a reversal happens and if not, you did not lose money left and right. When the market move chaotically and when big stocks are in no-man’s land there is only one scenario: you become a loser. In order to protect you from this negative scenario I have been emphasizing patience and slow engagement of the market. I am not bearish nor bullish, since for the moment no direction is clear. I used the weekends to clear my head and enjoy family and friends in order to be able to get above wood line and see the horizon. The bigger picture will form soon and we’ll be there to see it if we keep our mental and cash capital, as this is a marathon, not a sprint.
We Grow Together!