This week we saw a market holiday fall right in the middle on Wednesday. Additionally, this was coupled with a shortened trading day on Tuesday. Whenever we come across a trading week with a holiday right in the middle, volume dropping off shouldn’t be a surprise. This drop can cause choppiness and consolidation in the market until the holiday ends, and the industrial traders have come back from their barbecues and fireworks. This may not be the case for every market holiday, but it happens more often than not, and this week was no exception.
The thing traders should start to prepare for is the potential movement that occurs after a market holiday. When consolidation occurs, we know that eventually the market will break out of it in a rising or declining bias. We also know consolidation is common when a holiday occurs with a drop in trading volume. However, all holidays come to an end, and when it does that volume floods back into the market. To prepare for the flood, it’s never a bad idea to open some trades as lifeboats for your account.
An excellent way to determine what trades might serve as lifeboats are to find honey badger stocks that are currently ignoring the market consolidation. Another way to determine a good setup is to look at stocks with squeezes forming. These stocks may see a greater than expected move in the coming week when volume flows back into the market.
Having a plan of attack for the week following a holiday is one of the best trading plans you can give yourself. It’s a great way to jump back in after taking profits before the holidays, and it could potentially allow for quick profits.
With the above said, every Friday, I like to check in with the Simpler Trading team to find out what their thoughts were on the market this past week as well as a look ahead to the next. This week in particular I think it’s especially important given the holiday on Wednesday. Please take a look at their sentiments below to discover more about their overall market outlook.
Bruce — The markets kicked off the week with “ugly Monday” and really never recovered from an index perspective, even though we found some great long trades in stocks like AMZN. Today is end of month (eom) and end of quarter (eoq). Stocks “usually” sell off on these types of afternoons, and I’ll be establishing short index positions around lunch, just before heading to the gym. What about next week? Keep in mind that next week is a light week, with July 4th (and a market close) popping up on a Wednesday. Looking at the daily NQ chart, we have been grinding back up towards the 8/21 EMA that broke down after Monday’s puking. This type of setup is usually a “kiss the moving average goodbye” before doing a short term rollover. I continue to like the idea of being 80% cash, with a 20% mix of long and short setups, and the occasional “big day trade” or “big overnight trade” on setups like AMZN when they setup. With cash comes flexibility.
Carolyn — The S&P has held the last time/price low beautifully and today we are finally seeing a nice thrust off this last low. My upside target for a move off this low comes in at the 2823 area. I will focus on buying pullbacks as long as price holds above the 6/28 low.
Danielle — While the NQ and RTY pulled back earlier this week, I think this is nothing more than another buying opportunity, as I see further strength and another round of new highs into the end of the year. This doesn’t look like a train that is slowing down anytime soon. As for the Nasdaq, tech has been a major winner on the year, and this last launch to new all-time highs showed how well it has outperformed the S&Ps into the middle part of the year. Did the NQ pullback with tariff news? Yes, but it was incredibly extended and could only have been expected to take a breather after the strength we saw throughout May and June. With the Nasdaq back at the 50 period simple moving average, I saw it as a great opportunity to jump on NQ longs here. Why now? Well, we are coming up on a Q2 earnings reports. Historically, big name tech giants see a price (and implied volatility for your options players) rally into their earnings reports. Traders looking to capitalize on positive reports start buying into these stocks. So, what do I do? Well, I generally look for the best pullback I can find prior to earnings season in my favorite names and try to jump on before everyone else, to actually capitalize on that run into earnings via short term options plays. Right now, which pre-earnings runs am I looking to play with short term options? My favorites are MSFT, AMZN, NFLX, PYPL, ANET, and NVDA. Making short term plays on these names prior to their report is one of my favorite setups, and that is my primary focus right now
Henry — Indexes had a solid recovery to round out the short week, and it reminds me of a style that Cramer quotes best “there’s a bull market somewhere”. I know that’s not always as sexy, because it can be fun to catch sharp down moves, but I find that I’m more consistent when I focus on being long, then being long at the right times, in the right names. We started easing into NFLX and PYPL and as those start to prove you right, you can add to them. The GOOGL entry based of the CML idea was a perfect entry on Monday. The AMZN daily Squeeze is setting up nice and I think we’ll have a lot of opportunity into the July expiration!
Carolyn Boroden says:
See the original setup HERE
Expert: Carolyn Boroden
Setup: Setup on NVDA
Update from Carolyn: As far as the TOW…it has held above key support……long strategies should be in the money here, though I have higher targets to look for illustrated on the chart below.