Tickers discussed: SPY QQQ IWM FAAMG NFLX TSLA Software, internet and semiconductor group charts. Strategy update
The Weekend Profit Navigator provides a big picture stock market analysis for the week just past with a look ahead. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.
Stiffness vs Flexibility and Resistance to change
Last week in the mentorship group, one of our fellow traders articulated their difficulty in recognizing market shifts and even when recognized, having difficulty switching their mentality and trading focus. One reason I think that happens to many is that traders continue to do what works until it doesn’t. That creates a rigidity in and of itself. Buying the dip or even buying every single red bar since March 23 has been a winning strategy. It also creates a habit and habits are not quickly abandoned. I stressed the importance of objectively looking at new information and to incorporate that information into your trading posture. If a rising trend line is broken to the downside, at the very least, one should recognize something is different. That may result in stepping to the sideline for a period of time or it may mean shifting the long focus to new areas of the market where money is flowing. In other words, stay flexible and fluid. Being stiff and stubborn are not traits of the successful trader.
What to watch for Next Week.
All eyes on the 50ema’s
- The market parked many key indexes and stock at or near their 50 emas to keep both bulls and bears guessing.
- A break below the 50ema would likely usher in more selling.
- Holding price above the 50 staves off further downside and keep both sides guessing.
- Oil has made a decisive break to the downside.
- There’s a very good chance of a second leg down to the low to mid $30’s.
- Oil equities look terrible with many key levels breached.
- If this risk on asset breaks low, there’s a good chance equities fall with it.
- You can put Copper in the same category. A risk off move in Copper would not be especially welcomed for equity longs.
- The Fed meets Sept 15-16 and makes its announcement at 2pm Wednesday.
- Hard to game this one.
- I expect Powell to use the same playbook but not make any big policy shift ahead of the election.
Strategy Update – Defensive to bearish
- There are lots of sell signals on daily charts out there but with price holding the 50ema I am not willing to go out on a limb with a gonzo short posture.
- If the 50ema’s break, different story. Then I think you’d have to recognize that the bearish regime is truly taking hold.
- I want to see a capitulation low with extreme put buying before piling into a dip buy.
- FAAMGs: Still a lot of air potentially to be drained. A further sell – off in these names would weigh on sentiment across the board.
Companion Video details the index charts ( Weekly, Daily, and 30min ), the FAAMG Daily Charts, NFLX, and TSLA along with the software, internet, and semiconductor groups. Run the video player at 1.25x to reduce run time with no loss of quality.
SPY 30 Min
QQQ 30 min
$IWM 30 min
Put to Call Ratio
Durable bottoms do not end with call buying. I think there is more room to fall with extreme complacency being shown.
Pulling it all Together
I think we’ve handled the recent sell off pretty well. Trading light into the highs, quickly getting out at the first recognition of trouble, and taking tactical shorts during the downdraft. We covered at / near the lows and went short again to take advantage of another leg down. I think we have farther to fall. Still a lot of air beneath the FAAMG names. And if that plays out, it will weigh on overall sentiment. Recognize that a regime change is underway. We don’t know if the pull back will morph into something bigger but we need to be open to that possibility. The bulls must prove they can recapture the key levels above. Bears are in control and will cement their position with breaks below the 50emas on the indexes and other key stocks.
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