In this post:

    • What have been the trends in the tech, energy, financials, and transport sectors recently?
    • What is the time to scale down in position-sizing on long positions?
    • How fast can the markets revert to the mean when they are trading at the 3+ ATR extensions?

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Over the last few weeks, the markets have continued their grind higher on the backs of big moves from tech names like $AMZN, $GOOGL, and $MSFT. While tech has been the clear leader here, other sectors such as energy, financials, and transport “leave a lot to be desired.”

With the $SPY and $QQQ extended, being driven higher by a very select few stocks, this is the time to scale down in position-sizing on long positions. As bullish as things look here, we know how quickly the markets can revert to the mean when they are trading at the 3+ ATR extensions. Scaling down in position-sizing will allow you to continue to profit should the momentum continue, but will serve you well should the markets run out of momentum here shortly.

Though extended, what could send tech stocks even higher is the weekly squeeze currently firing long in $QQQ. Just like we saw from $NVDA last month, when a weekly squeeze fires long, some tremendous momentum can get released that sends the stock higher for weeks on end. With that being said, $AMZN has its own weekly squeeze firing to the upside, and after breaking out above an almost year-long level of resistance, the stock could be poised to rally higher from here.

Even with a potentially powerful weekly squeeze firing, we still want to pick our shots wisely as things remain very extended. In these kinds of environments, I am a big fan of waiting for a dip to the daily 8EMA, and building long positions in any lower time frame squeezes that setup at that level. Early this week, $AMZN fired a 4-hour squeeze long right off of the daily 8EMA, and with that bullish structure looking promising, I sold a put credit spread for a push into earnings. Currently, that spread is at just about 70% of max profit as $AMZN has soared almost 6%+ over the last few sessions.

Over the next few sessions, I’ll be looking for $AMZN to make a move through $3750, which is where I’d look to lock profits and wait for the next ideal entry. After that, the next move should be up towards the $3800 level.

Super bullish, super extended, so be sure to “pick your spots wisely” and position size appropriately, just in case the party comes to a short-term end here soon. Our number one job at these levels is to protect profits, not keep forcing the issue!

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