The good, the bad and the ugly

Good morning,

Yesterday, several reversals in the tech arena made me reduce a lot of risk and I exited most of my long positions. The weak action in $AAPL and $MSFT pushed the overall tech sector lower, as these 2 companies have been helping this ETF remain close to its highs. As I mentioned in the past, the breadth of the market is extremely poor, and if the leaders show any kind of weakness, then we may be due for a corrective phase.

The good – The overall market, the S&P is still comfortably above the moving averages and from a technical perspective still looks constructive. Several sectors are still performing well but it is hard to trust ahead of the FED meeting tomorrow. The longer we hold above 466 the higher the probability of a late Santa Claus rally.

The bad – The Nasdaq, once a leader of this bull market is showing serious weakness and is currently a laggard. The $QQQ broke inside the gap it created earlier into the month and have room to the downside all the way to 387. If tech can no longer act special, expect the entire market to suffer the consequences given the size of the juggernauts that compose the overall market.

The ugly – The small caps, the biotechs and the semiconductors continue to act poorly. These sectors, which are usually good market gauges are showing extreme weakness. The longer these sectors act weak, the higher the probability they will become a drag to the overall market action.

I am mostly flat into my account as cash offers me the necessary flexibility on such occasions. I did take some paper cuts yesterday but I respected my sell rules and got out of the way in time. With futures flattish today, see if the market takes a breather ahead of the FED meeting tomorrow.

My focus will be on patience today. I am in no rush to throw money out the window in such a tape. If conditions do improve, I will look at $FB and $TSLA for a possible move higher. The first showed great relative strength yesterday, while $TSLA despite more selling pressure from Mush held above $950.

$QQQ chart

The tech sector became a laggard yesterday as it could not keep the recent bull flag formation. It broke 396 which was an important support level and drifted back into the gap it formed earlier. If conditions do not improve, I expect this recent gap to be filled to 387. For better action, see how it handles 396 should it get there. If you are a good short, that may be a compelling area to start shorting ahead of the FED. I prefer to stay out of the way instead of losing in both sides of the trade.

$FB chart

$FB has been the strongest FAANG type play yesterday as it pushed above 336 for a move to 341. It could not hold all of the gains as the market had a last hour sell program. For today, it tech starts to act better, I will look to buy some $FB vs a 30 minutes low. It is above the moving averages and quite cheap from a fundamental perspective. 336 will be an important battleground between bulls and bears covering this name.

$TSLA chart

$TSLA looked vulnerable throughout the day. Late in the afternoon, Mr. Musk filled a new sell. The way in which he is selling his shares is frustrating most investors. Instead of ripping the band aid and finishing with this process he insists on doing it in tranches, offering mixed signals. The stock managed to hold $950 which is the only positive signal for yesterday. Depending on the opening, see if $TSLA can offer a good day trade, as Mr. Musk does not usually sell in two consecutive days.

Remain tactical, keep a large part of your portfolio in cash and wait for better set-ups. Follow our Morning Game Plan for a more detailed overview. Better days and set-ups are coming, just remember to remain disciplined and ready to take advantage.

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