This week, I think our Futures expert, Neil Yeager said it best. “Can anybody tell me about a week in recent memory where we’ve had this kind of craziness in a week?” At the end of this whirlwind week, I think it’s safe to say that we’ve gotten more volatility than what we expected. The index markets started off Monday and Tuesday strong, and the daily squeeze in the S&P Futures and Dow futures fired long. This was coupled with positive news related to tax talk, that was especially positive for the financial sector. Wednesday gave us a bit of a run for our money, when a sharp sell-off in the Nasdaq and sector rotation hit the market. However, even as the Nasdaq shot lower, the Dow made new highs and the S&Ps remained steady. Traders rushed to pull their money from everything tech, sending XLK sharply lower while financials raced higher. This rebalancing is normally done over a much slower period of time, than the sharp asset reallocation we saw on Wednesday. This was also coupled by another North Korea missile event sent the market into a sharp sell-off on Wednesday, which again, quickly recovered by the end of the day. Are traders done being shaken out by Kim Jong Un’s threats? At the very least, the pullbacks have been relatively minor and have been bought, but the volatility didn’t end there.
By Thursday, the Dow was up as much as 400 points at one point. The S&P Futures found support and then rebounded into a brand new high at $2658.50, 7 points from our target at the S&P fireline of $2665. On Friday the volatility continued, and a tweet from Trump sent the market lower again. Did this sell-off last? Of course not. This 45-point range for the day held at $2605, and climbed all the back to $2644 at market close. Tuesday and Thursdays are typically big volatility days, but we saw big volatility all week. The Dow in particularly has been the beneficiary of the uptick, while the Nasdaq has been in sideways to correction mode. After hitting lows on Wednesday, the uptick in the Nasdaq resumed Thursday only to break those lows on Friday. The new low for the week made on Friday at $6246 again proved to hold, and the Nasdaq traded higher the rest of the trading day – closing almost where it opened. Talk about some volatility!
After this crazy ride this week, what are our traders looking for into next week?
John – This is what is known in layman’s terms as “a spot.” We are extended so we could roll over at any time. And every single dip has been bought. Hold and pray? Short? What to do? Simple. For swing trades in this environment, I look to sectors that are in their own world, are not extended, and are experiencing net inflows of cash. The top of my list here is energy. The second group is biotech, though I am the first to admit I’m not a huge fan of this sector, so I’ll stick to energy. If you are going to play the gyrations we are seeing in tech right now, just shorten your time frame in order to adapt to the volatility. In this type of environment, a swing trade is 3 hours to 3 days, instead of 3 days to 3 weeks.
Henry – The biggest thing I’ve had to adjust for this week is clearly volatility. We’ve had situations like BA where the daily Squeeze was a little slow to fire, but then came through in a big way on Thursday. Then you have situations like GOOGL where I wanted to buy the reversion to the mean in anticipation of the Squeeze firing long, but those levels have not held. These are slower, longer dated trades so I’m generally fine holding for the big picture move, but with such sharp swings there’s more of reason to be nimble. Take more profits at extensions and force yourself to be patient for the pullback. Whatever you do, don’t chase higher then bail on everything when the headline of the moment sends the S&P 10 handles lower. That’s a vicious cycle that I’m trying to do the exact opposite of. I’m also spending some time in commodities with trades on the futures options in /GC and /CL. I’m looking at the 4-hour Squeeze in crude to help us on our way to $60.50 and holding gold with more of a long-term focus. It hasn’t been easy to hold this week, but once the daily fires we should have more of an idea where the monthly is going to go, then I’ll be able to have more conviction in the trade.
Carolyn – There is of course DANGER in this market between some of the news stories and that fact that we are really extended on the UPSIDE into timing cycles for a high…One thing you have to remember though is that it will take a whole lot more than some quick pullbacks to damage this market in the bigger picture. So seriously be careful if you are taking any of the counter-trend sell setups in the indices. Remember to be nimble or don’t play them at all!! Your other option is to consider the buy side when we reach key support decisions around symmetry which happened again today when the NQ tested the 6245 area. Remember that we don’t have to KNOW where the market is going to make money…but we have to trade the setups with defined risk and GTFO if those zones don’t end up holding up. This market is definitely getting sloppy. Some of you may want to stick with day trades until we have more clarity.
Bruce – We have had really wild intra-day swings in the indexes lately and I think this may be the new norm for a while. At least until we get resolution of the tax reform and the next fed meeting. I am trying to stick to my plan, buy the dips and be as patient as I can. It has been frustrating as you get in a trade and it immediately moves against you, but that is the market we are in currently. Stick to your plan and trade more defensively.
Danielle – I have been pretty aggressively long with the squeeze in the Dow and S&P futures, as well as many key names in the financial and healthcare sectors. With the S&P’s almost meeting our overhead resistance level at $2665, I’m going to exercise a bit more caution. I’m wrapping up my positions in the finance sector and focusing more on healthcare and I will look into energy next week. As always, any chart exhibiting a bullish trend with multiple squeezes is fair game, but I will keep the broader markets in mind. The Nasdaq has been shaky, but if we can hold the lows made on Friday and trigger long from there, I will look to get back into tech and the XLK stocks. I go into the weekend with positions on ADBE and AVGO for bullish runs into earnings, and long trades in AXP, CZR, EXAS, MPC, MSFT, PFE and PAYX.
Trade of the Week Update
In case you missed the original set-up CLICK HERE to see it.
Expert: Bruce Marshall
Update from Bruce: “On ISRG, I do still like and it has sold off with the NQ. I added a little more to my position and holding it.”
In markets like these, focusing on ETFs can be a way to keep a smoother equity curve. Trading ETFs isn’t going to have as much volatility as trading individual stock names. Even if you don’t want to trade ETFs, it’s really important to understand which sectors are trending, as this is where we find a lot of our hot directional trades. Check out this blog article for more information on trading ETFs. If you’re interested in learning more, check out John’s recent free webinar on his Haystack Method.