The last two weeks in the market, we have seen a lot more volatility than we’ve gotten in the past few months. The sell-off in the tech sector that began on November 29th, continued into Monday and Tuesday of this week. By Wednesday, the Technology Sector SPDR Fund (XLK) finally made a low that held. The selling in XLK was mirrored in the Nasdaq as well as the highest weighted products in the XLK – Facebook, Microsoft, Apple, Google all taking a beating. The Chinese internet stocks didn’t fare any better, with Alibaba Group Holding LTD (BABA), SINA Corp (SINA) and YY Inc (YY) taking hits as well. The Nasdaq also had a rough time holding on, showing weakness that finally looked to hold during Wednesday’s trading day as well. By Thursday and Friday, the Nasdaq and tech stocks began rebounding. Will it hold from here? I for one am starting to see buy signals in the Nasdaq with the daily squeeze that formed. The rebound has also given us buy triggers in several tech names, but is it time to jump back in?
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As for the S&P Futures, price hit a high of $2668 on Friday, and then gave us a pullback into the 8 EMA on the daily which hit and held on Wednesday, December 6th. The pull-back in the S&P futures wasn’t as rough as the pullback in the Nasdaq, largely because it had sectors other than tech that were performing well enough to hold up the overall index. The S&P fell short of the highs, but as of Friday’s close was only 15 points from the high. Additionally, a new 195-minute squeeze began consolidating that could easily give us another leg higher, should it trigger long next week.
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Next week, we have a quadruple witching expiration on our hands. Typically, during this time we focus more on theta decaying, income based options trades while the market historically chops around. What are our traders looking for going into next week? Let’s read their sentiments.
Henry – A few of the things I’ve been focused on this week include taking basic topics like exiting positions that aren’t working then allocating that cash to something that is working. I’m also reminded of markets that I really don’t enjoy trading anyway, and would probably do well to stay away from, like GLD. Other spots that have been working much better include names like PM, X and BA. I’ve also spent some time looking at differences in what makes a Squeeze like HD…and what makes a Squeeze like MSFT. One common theme with that is their proximity to the 50 DMA. We saw this with BA too. BA and HD had plenty of room to run because you have people that don’t follow the Squeeze trying to buy the 50 DMA, then you also have those that do follow the Squeeze to complement it. In the case of MSFT we were too far extended from that moving average. What’s interesting now is where do we go from here? The recovery from the lows, and the fresh Squeeze, in names like MSFT have me wanting to get long again, but for now I’ll focus on being a little more delta neutral and prepard to play the expected chop into next week. Then we can see how the weekly chart closes and get ready for the next plan of attack.
Carolyn – After a beautiful symmetrical pullback in the indices, they seem to be back on track for possible new highs. Remember we have to play this pattern until it does not work anymore. The potential upside target I’m looking at comes in at 2676 in $SPX cash. I only start to get concerned now if the 12/6 low is violated. Otherwise I’m watching for the Santa rally!
Bruce – We have the December FED meeting next Wednesday and then expiration on Friday. I expect that we push higher into both of these events. I positioned this week to get long ES and NQ and hope to ride these into end of next week.
Danielle – The trend for the last three months has been excellent. Late last week and earlier this week, the overdue pullback in the indexes was expected, but I can say that the hit in tech took me by a bit of surprise. I bailed on tech related trades until further notice, focusing more on IBD50 stocks and tickers in the financial, energy and healthcare sectors. Marathon Petroleum Corp (MPC), LyondellBasell Industries NV (LYB) and NextEra Energy Inc (NEE) have been solid this week. I added UnitedHealth Group Inc (UNH) on Friday after a pullback buy triggered long. As for next week, I wouldn’t be surprised if we see chop for witching expiration. However, I’m keeping my eye on those squeezes in the index markets to see if they can give my directional trades a push into the end of the year.
Trade of the Week Update
See the original set-up HERE
Expert: Carolyn Boroden
Setup: Buy setup in Philip Morris International Inc. (PM)
Update from Carolyn: “Although some of my traders have already booked profits in the PM Trade of the week, I am still setting up pullbacks for new buy entries as the upside potential is still pretty healthy if we see price continue to hold above the November lows! Here is the updated chart!”
On the schedule for this weekend, we have our upcoming class on trading Cryptocurrency. I finally bought some Litecoin and I’m excited to watch the class. Click here to join us tomorrow!