EMERGENCY SESSION: 2nd Close Under 21 EMA in 6 months.
What a nasty close, this was our SECOND close below the 21 ema since the uptrend began in late October. CNBC is in panic. I always said that was my focus as a turning point should it come and not it came after the afternoon commentary from fed member Kashkari. He spooked markets today by saying the fed may not cut rates this year. Remember coming into the year we had people looking for 7 rate cuts, then inflation heated up again and we came into today looking for 3 cuts. Today Kashkari did what the fed members always do, confuse market participants.
And now we’re here, a very nasty bearish engulfing candle on the SPY that closed below that 8 and 21 ema after that blowoff top this morning where every name went nuts, even Tesla which has been the worst performer by a mile was up 5% at one point. That alone should’ve triggered alarm bells. Anyhow, now the 8 ema is sloping down, not good, and it’s going to potentially cross through the 21 ema for a bear cross if the jobs number tomorrow doesn’t save the market. If Jobs do not save the day tomorrow, that yellow line below, the 50 day is the next level to watch followed by that 100 day below 490 but no you have to start planning for what could happen next.
Like Mike Tyson once said, today was that day. 6 months of straight up and we got punched in the face, how do we react from here?
Like I’ve been saying recently, the SPY losing trend doesn’t mean much if you’re a long term investor, it means we’re potentially in for a period of weakness, that is normal after all considering we’ve done nothing but go up since late October. In this scenario you can just close your eyes and wait for better days, but if you want to profit from this selling covered calls is now your best friend because it allows you to generate some profit while holding your shares and allowing you to still sell higher.
What is the trade now?
Oil - I’ve been point at this for a while with things like XOM and VLO. SPY down doesn’t mean everything is down, energy has been unbelievable since March began and these charts look fantastic right now.
Gold - Gold too is at highs, if you go back to that NEM trade I posted here on 3/16 NEM is up 15% since. That trade is still applicable but it has run alot. You can still play it though.
Cash Rich Companies - While megacap tech sold off today, that was more just herd mentality panic kicking in. These companies are the winners of rates staying higher for longer. They are taking in all this cash and it is being put into high yielding instruments.
Could this all be nothing? Sure, we could have a move higher on jobs numbers tomorrow, but I would pay attention to those 8 and 21 ema because we could move higher, reject those and turn lower. That would be a classic bull trap. We also have earnings season starting with banks next week.
Am I concerned longer term? Not at all, I’m more surprised how long it took for us to get this close. Tech stocks may not work for a little bit, that is about all I can tell you from today’s close, but will they work over longer timeframes? Sure, they’re still making tons of money, fed policy doesn’t really change that.
This is your chance today afterhours, tomorrow morning to really step back and look at where you are right now. Most of you are probably up well in excess of the market this year. If you’re prudent you take some off, if you’re in 2026 calls, you can if you want, but no sense in creating a tax liability for April 2024 market chaos. I am holding my position, I was always in until at least January 2026 with Amazon, assuming there wasn’t some curveball from somewhere. I’m just cautious of what the markets doing. This likely won’t be pretty for a few days/weeks but who knows, ULTA yesterday put in a disgusting candle falling through the 200 day on HUGE volume and today it was up 6% at one point before closing up 2%, there was a time where closing below the 200 day on volume was pretty bearish, now it’s a contrarian buy signal apparently.
Bottom line, today was ugly, there were warning signs all week, I mentioned them multiple times with VIX perking up, the weak closes on the SPY,etc. Today we jumped over the 8 ema and completely reversed it. That was it, people got out today, that’s how a bearish engulfing candle forms. You test highs and reverse to lows. If you’re a short term trader and only want to be long, I suggest waiting until we reclaim the 21 ema at a minimum before considering longs.
Whatever you do, do not panic, you have plenty of time to adjust your holdings. The most important thing is understanding when and where trends shift and not sitting on your hands, unless you want to. The chart above is telling you something changed, caution ahead, what you choose to do with that information is your call.
Have a great night.
Good advice!
Great write up!