Consolidation After Breakout
Join me as I organize my thoughts about the upcoming week
After being up nearly 5% last week, it’s no surprise that we chill out this week. I thought perhaps the move from the election would continue, as there are little headwinds, but the giveback basically started once trading began this week. At this point, we have come down to the 20-day simple moving average. Will buyers step in here? Or should we expect more downside?
Market Review
This week, SPX is down 2.15%. Macd hasn’t yet crossed below the 0 line, but with the significant drop on Friday, we likely overshoot the 20-day AT THE VERY LEAST. Sometimes we get a quick bounce back, but so far we aren’t making a convincing / typical bottom. This means there is likely more downside to come. While we are unmistakably in an uptrend, we are in a small bear countertrend at the moment. On the last dip, prior to the election, the 50-day SMA held as support. Coming down to fill the gap at 5783 may be logical. I don’t see much downside below that. The economy is strong, and the seasonality is strong.
I have quite the position on. All the long strikes are simply there to support my short strangles, which is very tight and aggressive. It’s unfortunate that my trade has gone against me, but I’m trying to treat the calls separately from the puts. This helps me make the best decisions, and make those individual legs as profitable as I can. After doing that long enough I should be able to close this position out and start a new fresh one. It’s semi-working at the moment because I’m currently sitting back up at 71.4% YTD, but I won’t feel “safe” until I close this one out. I imagine I’ll be fighting with this for the rest of the year, unfortunately, but hopefully I’m wrong there. Two letters ago I was at 67.9%, then last letter I was at 37.1%, and now back to local highs. This just goes to show that half of the battle is simply living to trade another day.
Tweets
Here’s another reason that just selling the put side isn’t always a bad idea. As the index increases, it’s going to continue to increase at a faster pace. So it’s not just that the market goes higher over time, it’s that it does so at an ever-increasing pace.
I don’t know how to feel about this. Of course, the bear will say these are peaks where we will fail again.
Quick Charts
Apple down 1.1% this week. I already have two sets of put credit spreads, and I’m tempted to add another here. I believe we will break out here shortly once we rotate back into leaders.
Giving back ALL the gains to confirm the break-out and possible fill the gap. It’s given up 4.27% this week. If it did fill the gap, it would be coming down to the 222 area. Unfortunate, but luckily, I wasn’t holding. I set an alert for 223 to reevaluate entering a position then.
Vix is up nearly 16% this week, basically all of that coming from Friday’s move down in SPX.
Last letter >50ema was sitting at 66.4, so moving down to 60.40 isn’t too much damage done here. Neutral territory.
But McClellan is getting close to an oversold level. Potentially hitting -50 area early next week.
Fear in greed is once again sitting at 49. Could go either direction from here, but given the larger trend, this could signify a bottom.
NAAIM unfazed and continuing to build its position this week. From 88 last week to just under 92 this week.
Earnings and Events
2024 Results
Q2 Winners: ELF, FSLR, CHWY, CRWD, AVGO, ADBE, ORCL, FDX.
Q3 Winners: GS, SPOT, LMT, ENPH, TMO, RTX, MCD, PYPL, PLTR, UBER, UPST, SHOP, LLY, TTD, SE, ORCL, MU
Q3 Losers: UPS, QCOM, LRCX, MBLY, W, INTC, ROKU, SMCI, ABNB, DG, AVGO
Q4 Winners: TSLA, CVNA, PLTR, ELF, SHOP, SPOT, DIS
Q4 Losers: HOOD, ROKU, W, MELI, NVAX, RKT, AMAT
Last Week
Plug is only down 9%. That’s pretty good, given that all ‘green’ stocks are (or should be) dumping. I do think solar and other renewables are cheap enough, that they don’t need subsidies to be rolled out, but clearly those subsidies will be removed under the new EPA, and so sales will decrease.
SHOP +24%
PLUG -9%
HD +.4%
SE +8.5%
NVAX -20%
SPOT +15%
RKT -13.75%
DIS +15.85%
AMAT -11.4%
This Week
Interested in: WMT LOW TGT NVDA SNOW PANW DE
Jobless claims came in better than forecast, but core retail missed today. I think this could be negative news for WMT and TGT next week, but that could be priced in at this point? I will say TGT has a really nice base here above 150, and WMT has been killing it since mid-May. I’m sure all eyes next week will be on NVDA earnings. There are a lot of other earnings, but not big names. None of the events for next week look interesting to me.
Lat week, I said that the events of this week should firm up these probabilities. I wouldn’t say that’s come to pass, but the probability of NO cut is up from 35% to 42% for December. The cut mid 2025 also moved from July back to September. Clearly things need to solidify more in the next month. I suspect the increase in no cut is just because we are dipping. Once the bull market resumes next week, odds will increase for the 25 point cut.
Thoughts
The small dip came quicker as the glow of the election wore off slightly. This doesn’t impact my feelings towards the end of the year at all. We just needed a minute to breath after the leg up.
NVDA is big earnings next week, but the rest of the earnings are either smaller names, or retail, which just reported less good numbers this AM in general.
We are close to support on SPX, but I would like to see a bit more of a flush and then build a base. Maybe that comes next week, followed by a move up into the holidays.
Rating
My attempt at being clearer on my expectations for the upcoming week:
Bullish
Bullish/Neutral
Neutral/Bullish
Neutral
Neutral/Bearish
Bearish/Neutral
Bearish
I have been missing these recently. If you’ve followed me for a while, you know I go through periods where I am in sync with the market, and then several weeks or months when I’m out of touch. Overall, I’m pretty neutral here. We could have a bit more to drop, but maybe that happens early next week, and then we end the week either flat or even up? I’ll go with #3 next week. Slightly bullish overall, but maybe with a little pain first.
Conclusion
I’m continuing to move my portfolio in the right direction. Every couple of days I tweak things to help keep it aligned with the market as best I can. My short calls are closer to the money than my puts, so I’m definitely enjoying the move down, but I don’t think that will last long.
Good luck out there!
As always, staying realistic and nimble is key to moving forward productively.
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