Good morning guys,
As you can see yesterday seemed to be in bear territory with indices faltering around 3% and with Big Tech getting crushed across the board. As I have mentioned yesterday it was a good day to stay tactical and to have cash as a position, as the bulls seemed to have left the party. However, in the last half an hour of yesterday’s tape we saw a bounce. The big question is: is it a dead cat bounce or is the market oversold and the downward move is finished? The oscillator was at around -40 yesterday, but it can easily go lower than this, so take care.
The back bone of the market was definitely bent, as I predicted yesterday, but today is not a time for being short until you see what the afternoon bounce meant. Yesterday the $SPY sliced through the 100 day EMA at $431.38 and it went to the low of $428.86. When it went through the 100 day I dipped my toes and bought a small portion of calls for the beginning of October, to see if we can have a bounce off of this. You can try and do the same today, see if there are any buying opportunities, but in small quantities, just to try and see if yesterday was the bottom for this sequence.
The $QQQ broke the upper wedge and went down through the 50 day EMA, but nowhere near the 100 day. It is a wash and repeat kind of situation in the market, however, the big Tech fared slightly better than the $SPY. Will the $QQQ bounce from here or follow a delayed path towards the 100 day? I also bought a small portion of calls in this index at the 50 day, just to try it out.
The small caps were faulty all through last week and yesterday they were the worst hit – with a sharp drop under the 100 day. They are in no man’s land, above the 200 day, but well under the 100 day. When the Russel ETF has this kind of move it signals high turbulence in the market – a risk off kind of approach. The spikes of its candle are long, with a small and feeble body, giving us an indication that there is still power in the bears’ claws for the small caps. Take care because in a bear market the small caps are the first to be hit and oversold. A good sign would be for the $IWM to try and slowly fill this gap to the upside, rather than take another plunge – but for the moment we do not have a clear signal.
The Norwegian Cruise Lines yesterday showed relative strength due to the announcement that the US is relaxing travel rules with the EU and the UK. Therefore the airlines and cruise-lines seemed to have weathered better yesterday’s sea of red. This stock is in a pennant kind of formation, and even though the market seemed to have tried to drag it down it kept its shape. I stuck with this stock yesterday as it did not break the levels and if the bulls try to win this day this stock should prove strong. Stop loss in $NCLH is $24.47.
Is today going to be turn-around Tuesday or has an active sequence to the downside started? A real correction in the market would be closer to 10%, not the 2-3% that took place on Monday. Take care today, because like someone said: the first 5% fall is strenuous, but the next 5% drop is sharp and painful. Wait for a clear direction, don’t have FOMO as you’ll always have the opportunity to get back on the horse. It is a time to be cautious and to SLOWLY and incrementally put your money at work in indices, until you see the intention of the market. Follow the trend, don’t try to fight it.