Some traders may recall the media’s questioning frenzy earlier this month. Everyone was wondering if the markets were going to crash or not. There was a mass of speculation, and with that, a great deal of volatility. However, like we have seen in the past, this sharp decrease seems to have found some footing this week as it has climbed off support levels. One thing to keep in mind though, is we are still not by the highs we were trading at earlier this year. At this point the tick is starting to move back towards some intraday resistance levels. Right now it feels like the end of a classic Rocky and Bullwinkle episode where there are two different possibilities on what could happen in the next episode. The first option is we continue to move past resistance back to new all time highs in an overall rising trend; or the other option is resistance holds and this is the first lower low of a longer term correction.
One thing I like to keep in mind is taking No Trade is also a Trade Action. Sometimes when you see the uncertainty of direction in the markets, the best course of action can be to hold onto your capital. There will always be plenty of opportunities to jump into a new trade, so let the tick decide which way it wants to move in the trend and take action then. If this ends up being a level of consolidation for the markets, don’t forget, there are plenty of non directional options strategies that can be used to harvest profits.
John — We are wrapping up a great trading week as shorts felt the pinch and had to spend most of the week covering their positions. NFLX, AAPL, AMZN and NVDA powered higher, with NVDA hitting new all-time highs this morning and other key stocks getting close to new highs. That said, I think the easy upside gains are over here. Yes, it is possible that the markets go straight up from here and make new all-time highs, but in terms of risk vs. reward, the upside warrants caution. For the S&P 500, we have rallied right back to its .618 retracement. This is a major decision level where an upside move could easily tag the 2750 to 2775 level, but the door is also open for a retest of the lows. We also have a three day weekend in front of us. This morning we took profits in NVDA and BA, and took partial profits in ROKU, as we did with BUFF earlier in the week. While I definitely put on some exposure this week, I’m currently back to 95% cash, and I’m considering adding a small bearish position later in the day in the form of long SPY puts. For Tuesday, my main goal is to be “almost flat and ready for anything” so I can start the week in flow with whatever the markets have in store. Also, keep in mind that a 3 day weekend is a rare treat for the trader. If you are fully loaded you won’t be able to relax and you will just be obsessed with your portfolio. I’d say after the volatility of the last 2 weeks, mental rest is critical. Consider giving yourself the gift of going flat and be rearin’ to go on Tuesday. Have a great long weekend.
Danielle — This week, I returned from vacation on Thursday and was happy to see the market had rallied from the lows made on Feb 9th. Are we out of the woods as far as this downside correction has been or are we still looking for another low? Well, I can tell you that I’m primarily watching the .618 and .786 retracement levels in the NQ, ES and YM futures. The NQ is the only one that has breached the .618 resistance level to the upside, but it hasn’t breached the .786. The S&P breached this level at $2744 with just a wick, and the Dow did the same. Will we will from here and rollover next week? That remains to be seen, but I’m voting we climb higher. I like the strength in stocks like NVDA, NFLX, MA, MSFT and GOOGL. I for one think we climb higher from here, and this pullback was just a nice buying opportunity.
Bruce — We are at a critical moment here is the market. With the strong move down accompanied by the strong pull back this market could really move in either direction. Right now I find myself holding two trades and currently the majority of my capital is in Cash. If we break above and move higher I will look to Buy the market and if we break below and move lower I will look to sell the market. Until then I am okay with staying in majority Cash.
Carolyn — Last week the sky was falling…..This week NOW we know that was a great opportunity in retrospect. The good news is that even though we did not KNOW if the market would rally like this, we had some great relatively low risk setups that have place out nicely. We had work in AAPL, AMZN, GOOGL timing, some clarity in TSLA and more. Remember that the way you make money in this market is with the setups. The formula to make money with my work is setup + trigger = trade entry, then you manage it. For example when I put out the AAPL setup to my subscribers the setup was the support at the 148-150 area. It triggered an entry on the 15 and 30 minute charts and now we’re just trailing up stops and looking for a potential target at the 188.22 area. That’s how it’s supposed to work! When a zone is broken however, we need to ditch the trade!! Have a great long weekend. Looking forward to seeing some of you in my class Saturday!
Henry — “Equal opportunity dream destroyer” is a name John coined for the markets awhile back, and it rings awfully true the past 2 weeks. All eyes will be on the S&P futures at 2745 as this is the .618 retracement of the major high to low. I have to think at this point most bears have had their dreams destroyed, so is it time to head back lower? Personally, I’m not trying to get short here. I am very much thinking I’d like to be in cash, but a few of the charts I had been doubting, like BA have really come through and I’m going to continue to err in favor of the trend, just doing it with 1 and 2 lots.
David — In many ways, this bounce in the indices from last Friday reminds me of the low that the market made two years ago. Not only was the date almost identical, 2/11/2016 and 2/9/2018 (2/10 and 2/11 were on the weekend this year and there was no trading), but the behavior up from those levels was similar. The first pullback two years ago and the pullback we saw this past Tuesday were both very modest and didn’t give the sort of high probability entry I like to see. Whether or not that means that the market makes a fresh advance to new all-time highs from this level remains unclear. There are patterns which would allow the advance from last Friday’s low to continue. Below Tuesday’s low in the S&P 500 would make that more likely. Without clear signs of a turn down, I’m going to (cautiously) favor the upside.
Trade of the Week Update
Carolyn Boroden says: Though DIS seemed to remain flat at the start of the week, we did see a move up going into the end of the week with a nice bounce off support levels.
See the original setup HERE
Expert: Carolyn Boroden
Setup: Setup on DIS
Update from Carolyn: The TOW in DIS is starting to play out. My next hurdle comes in at the 108.25 area. The potential upside target is still 116.71 if we get the full move higher.