Happy Saturday and welcome to a new edition of our Weekly Digest! We had a wild week on Wall Street with big swings to the downside, followed by powerful moves in the opposite direction. These moves were accentuated by the low volume associated with the last two weeks of trading in August. From a news perspective, several headwinds hit the market, as the Talibans took control of Afghanistan, retail sales came in lower than expected and some Fed officials pointed to the possibility that tapering might happen as soon as September. In addition. Covid worries hit the market as well as the delta variant became the prominent threat to the 90% economy in which we have lived for the past year. We have preached caution and even less trading throughout the past weeks as the tape became very hard.
The narrowness of the market, with only a few stocks keeping the indices at all time highs and the precipitous fall of the small caps were worrying signs for a while now and unfolded in the past week. However, as Warren Buffet correctly emphasizes, it is difficult to bet against the resilience of the US market as a whole as the action on Friday pointed out again. The strong close of the main indices on Friday sets up a new perspective for the last trading week of August. We are currently above the moving averages and some momentum has been reclaimed despite the fact that the market remains narrow and difficult to navigate. Staying on the sidelines this week would have been the correct approach until the dust settled. Buying extreme dips in strong names such as $MSFT, $NVDA, $AAPL, $FB and $AMZN might have been even a better approach which could have rendered your portfolio a green week overall.
As always, there are a few great set-ups each week which need to be materialized in order for your portfolio to grow despite the aforementioned headwinds. This week we focused on several of them and below you will find the charts of our best trades of the week and the manner in which we approached them.
Microsoft has been a great example of how to profit in a such a narrow market. The company was one of the few tech stocks to keep above the 21EMA throughout this tumultuous week. The strong reversal on Thursday when it managed to reclaim 290 was a great entry opportunity which led to a 2-day rally all the way to 306. This was a great calculated trade with limited risk which could have been approached with a well defined tier system. For next week, $MSFT looks a bit extended and might need a pause in order for the moving averages to catch up with the price action.
$NVDA was one of the last big tech companies to report earnings this week. The company reported a blockbuster earnings report and impressed analysts with its guidance on Wednesday night. Given the weak market conditions, the report was sold in the early parts of Thursday, but the stock managed to reverse and as soon as it reclaimed Wednesday’s low, it entered a new active sequence which was very beneficial for our portfolio. Buying on extreme weakness versus a pre-defined low proved once again to be a winning strategy. The stock is now right at its previous all time high and looks set to take that out next week if the market remain as strong as on Friday.
Crypto has been acting a lot better in the past month and we were looking for an opportunity to buy $COIN on a reversal as this is one of the main beneficiaries of a strong crypto market given its business model. After an accentuated drop from 294, the stock found a bottom around 240 and reversed on Thursday offering us an entry opportunity once it reclaimed Wednesday’s low. We managed again a great 2 day trade which took the stock all the way to 260. $COIN remains in a strong position for the next week as it is well below its post-earnings high and is not at all extended here. For this to have continuation, its needs $BTC and $ETH to continue their recent run and not to reverse in the next sessions.
We managed our crypto account extremely well this year as technical analysis worked very well in this sector. Starting from July 20th we became bullish once again on $BTC as the ‘B’ word conference was looming which proved to be an important catalyst. In the past week, we observed a certain weakness in the leading crypto and waited for a better set-up to re-engage it which occurred on Thursday when it made a potent reversal reclaiming Wednesday’s low. This offered us a $5000 move in this asset. We are currently smaller in our $BTC exposure and we will see how it reacts during this weekend before we put more risk on.
Tesla was probably our most difficult trade this week but in the end it proved to be a profitable one. In this example we used a different technical analysis technique: the hammer candle. $TSLA has been on sale since hitting $730 as news hit the tape about a new investigation into its Autopilot feature which caused several accidents in the past years. On Tuesday, after dropping more than 80 points in a few sessions we bought some calls expiring in September as the hammer type candle showed that a temporary low has been set. Our strategy worked great and in the following day we sold calls to create a spread which is still in play for next week. This type of strategy is for more advanced investors but we hope most of you will be able to employ it as we will explaining more such examples in the future.
We hope our weekly examples of our best trades help you better understand our process and how technical analysis can be used in any situation irrespective of the market conditions and in any type of asset, be it a stock or a crypto. Thank you so much for being our followers and continue to follow Eclubtrading for more such trades. If you would like to find out more about our products, please visit the link below and subscribe to one of our paid services. Have a great weekend and see you all back on Monday.