The market has been moving in some interesting ways…
There seems to be a battle of the FOMO traders buying and the technical hand of the market flicking them away like a little mosquito.
What should you be looking at to define your next trade when there is so much uncertainty and confusion in the market?
Focus on the hotspots, which is where youll find the movers and shakers of the market. That’s your sweet spot to start sifting to find a trade.
Wacky Market Movement
Yesterday I was watching the QQQ and my goodness was it a fun ride. We started to pull back a little bit in the afternoon, it seems like everybody is starting to get a little nervous as we move closer to a real heavy hitter reporting earnings tonight.
People are clearing the way for Microsoft to report and they don’t want to find themselves in an Indiana jones moment running from a bolder hoping they can find an escape route.
People are starting to get a sense of the FOMO trades they are in, realizing they may have gotten a bit ahead of themselves
Let’s take a look at the QQQ chart and see if I can help you spot this trend and understand how to trade it.
We saw the FOMO trade happen last week, people where running through the front door like its black Friday in July buying any stocks they can get their hands on. As you know, because of this market wide trend there were over 1200 companies who broke their top Bollinger band.
People were in search for a magic bean that says inflation is over, the markets are going up. Specifically they were looking for the Technology sector to take the lead. That is where most of the money was moving to.
Now a top Bollinger Band break alone does not meet the technical definition of an overbought stock, but, it will create similar market movement that we would expect to see in a stock that does meet all the technical requirements.
This is rock solid proof that we are still in the disbelief stage of the market sentiment cycle Last Week we saw two days of QQQ sitting above its Bollinger Bands before the market rolled over. Everybody started to have a bit of buyer’s remorse. This is all a part of the disbelief stage where people really think that nothing more can go wrong.
Trust me when you are unwinding everything that has gone on during the emotional whiplash of a ride we have seen in the market youll find realize I am right on this. Don’t be the one waiting until another 48% drop in the market happens AGAIN as it did in 2008 before you make the choice to follow my teachings. I don’t want us to meet on an ‘I told you so’ moment, rather, a ‘welcome to my crew’ moment. Here is a special 6 month offer, Test the waters with a 68% discount and let me guide you through the Acceptance stage of the market, that’s where the real money is made…
QQQ Is Looking A Tad Timid
As we come out of the disbelief sage we start to see QQQ experiencing some market questioning. The trader’s trend line and the investor’s trend line (20 day and 50 day respectively) coming together.
Check this out, it’s starting to mirror what we saw back in April….
Now, why would the market be repeating a pattern that happened just 3 months ago?
Earnings are the markets gut check, this creates some tradable moments as the market tries to correct itself. Those are all well and good but how do you trade the larger pattern here?
Do you remember last week when we talked about XLF and how Goldman Sachs kicks off earnings? When you look at the bigger picture here, it is 10 to 12 trading days after GS before you start to see the roll over in the XLF and in the markets as a whole.
Conveniently, that two week range coincides with the large roll out of earnings announcements from companies in the Technology sector. So over the next week or two keep an eye on XLF.
More importantly keep an eye on QQQ and the trend we are seeing develop there, that is the markets heartbeat that’s showing a bit of an irregular rhythm. When this pre-earnings high starts to wear off that’s where youll want to make your move.
The QQQs Movers and Shakers
I love to look at the extremes of any index. It tells me a lot about what is happening within the market. It shows me the tail that wags the dog. We went over this when I talked about the Harbor Freight of stocks but I want to lay out the current top 10 and bottom 10 for you and show you how to use this zone of any index to find your next trade.
I know this list is surprising, there are a few that youd probably expect to see here like Netflix or Tesla, but who would have thought Analog Devices, Splunk, and Ross would a part of the group moving the markets?
If I would have shown you this chart in the beginning of the year it would have been filled to the brim with companies youd expect like Amazon, Google, and Meta, but no right now…
What do all 10 of these companies have in common that’s making them be the big movers?
Nothing, there is no a thing any of these companies have in common that would cause them to group together as the top movers in the QQQ.
That answer actually tells a full story that would be easy to overlook.
These stocks were all recently pulverized by the market. Making them fish in a barrel for people to artificially drive the price up. It’s where the market goes when it wants to make a quick buck.
Let’s also take a look at the bottom of the list, this one shows a bit more of a trend leaning towards the Bio-Tech sector at least ones that are based in therapeutics. We also see names like zoom from the tech sector, Walgreen Boot Alliance in the consumer staples sector, and Fastenal Company in housing.
Some of these make sense.
I expect QQQ to be acting in a bit of unison, but it’s not. The market is losing its direction in the fog of war. That is when we are able to capitalize on the unusual movement because the technical are the natural law of the market. We can predict the next move based off the unusual movement we are seeing now using the indicators I have given you.
The main take away is to just avoid the bottom of the index and stick to the top that’s where youll find movement that you can profit from.
Get my full rundown here
And remember my door is always open ask questions in the chat I love to answer them. If youre still unsure of your ability to find a trade you can always come hang out with me in the Night Trader room by joining right here.
I’ll see you guys tomorrow don’t forget youll have a full two hours with me one in the morning and the Night Trader room will be open for everybody come see what we are about!
Quantitative Specialist, Penny Hawk
July 26 2022