Well, I’ve got some bad news to report, we put in some ugly candles this week in the market, we likely have an overall period of weakness ahead still, but there are sectors that are going to work and I’m going to discuss them before I get into this week’s best idea.
The SPY put in a bearish engulfing candle on the weekly but still remarkably sits over the 8 week ema. Just shows you how extended we were.
On a daily basis, the SPY broke the 21 ema yesterday, you know that’s my line. Expect weakness here. We first broke that in April and you can see the dip that followed, I would look for that 50 day at 540 to be next support and if that can’t hold, then the white line the 100. If things get really dicey after earnings season that 200 day isn’t even at 500 yet.
Tech stocks continue to be the worst with the QQQ, below, about to see an 8/21 bearish cross and nearing the 50 day. This is now on its 3rd close below the 21 ema, so it is leading the SPY in that regard, big tech is seeing major outflows for the moment.
So what is being bought?
IWM - Small caps
XLE - Energy
XLF - Financials
So there is your playbook, short term, buy the sectors of strength and do not think about large tech stocks, they will recover and be buyable, but it won’t be until you see a close over the 21 ema. Many of these names like AMZN and META have lost the 100 day already, MSFT and GOOG lost the 50 day, NVDA sits right on the 50 day, and only AAPL still remains over the 21 ema as the strongest in the group. The thing is, the Nasdaq is barely 5% off highs, this isn’t even a correction, it is just a massive selling of the market leaders.
Alot of you asked me about CRWD yesterday with the chaos they caused. Look where the daily sold off to. It bounced right off the 200 day, and while that is technically exactly where you want to see buyers step in, I do not think this is a name you rush out and buy. If you want to sell puts another 15-20% lower, go ahead, but there is some seriously technical damage now. The problem when a name collapses like this, there is now a ton of overhead resistance that takes time to chew through. Every pop is sold as people try to exit losing positions.
Look at this weekly candle, it closed below the 21 ema for the first time since April 2023. This type of technical damage usually doesn’t repair itself right away and I think you’re going to see a financial adjustment to estimates here. I personally would not touch this, but if you want to be involved, put sales way lower is really the only option in my book.
A few of you have asked me if I track these weekend best ideas and the answer is yes, Luckmaster built a sheet below that tracks these and this is the last year going back to August 19,2023. That is what if fit in the screenshot. 28 are positive, 11 are negative. 72% were right and 28% were wrong, I’m not perfect, but there were alot of good trades in here. Again these are usually names I think are worth adding for a longer term position in shares. If you’re looking to trade them I always give my suggestions about using put selling to offset call buying costs. You will do far better than just straight call buying if you heed that advice. I hate when people message me about a trade not working and then I look and I suggested some risk reversal that was for a credit but they ignored me and bought calls that ended up not working. The whole point of drawing up these risk reversals is to structure it to where you can still be ok even if the calls don’t work. Do not ignore that.
As for the name this week, I have another small cap like last week because that is the sector that is hot now, this name has seen a ton of bullish option flow, there are multiple analyst price targets over 100% higher than it currently sits and I think there is alot of value to be unlocked here. So as always I will have a few trade ideas
a conservative trade
an aggressive trade
a way to buy shares and use a covered calls to profit while you wait.
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