Market Overview

In the absence of any significant catalysts the S&P 500 index has been trading in a range with no clear direction for the last 2 weeks. The trading week of November 16-20 is also OPEX week which is historically highly choppy and this week was no different. Moving forward, we have two significant catalysts that could weigh on the market: Thanksgiving and vaccine.

While the news of having a potential vaccine is not new, there have been further developments on that front. According to former FDA commissioner Scott Gottlieb MD, Pfizer and BioNTech are requesting emergency authorization from the FDA to begin administering the vaccine. According to the official release, if the application is approved, the vaccine will most likely start getting rolled out in phases: Health care workers and elderly people with underlying diseases getting first dibs. While the news came after Friday close, the decision will certainly take a few weeks to be reached.

ES [S&P 500 FUTURES]

Towards the close of the trading day on Friday November 20th, S&P 500 declined rather severely for the time frame in consideration. Important to note though is that despite the rapid decline, the price action remained constrained within the same zone it has been trading in for the entire week. Moving forward, we have a short week due to Thanksgiving.

Historically, the market has performed well during the holidays, and while historical data is not necessarily 100% indicative of future data, should the lows at 3540 stay in place there is no reason to short the S&P.

Should the price action slip below the lows there is demand at 3500, which is also a retest of the breakout, however that level has been tapped multiple times and might not hold another test.

On the top side, there is supply at 3555, 3570, and then the top of the channel which is around 3580 as well. Our analyst Jim sees 3600 and 3640 calls long for this upcoming thanksgiving week, so if the lows of the channel remain in place that could be a decent target to shoot for.

NASDAQ 100

The Nasdaq 100, whose weight allocation is 48.10 and 19.10 for information tech and communication respectively, is a fair representation of the technology side of the stock market. 

For 12 weeks now, the Nasdaq 100 has been consolidating back and forth in a wedge. With no significant catalysts, and earnings for some of the biggest tech companies being a couple months away, there has been nothing to send this index over the top and is thus consolidating along the top end of the long established trading range. Switching to the hourly chart we see a previous DBD supply zone turned into demand and a DBD supply zone above clearly, which are keeping this index into an even tighter intraday/daily range. 

For now there is no indication of a break up or a break down, so futures trades are likely best to be taken once a clear direction has been shown either up or down above the current intraday trading range.

DOW JONES INDUSTRIAL AVERAGE

It has been a fantastic 2 weeks for the Dow Jones Industrial Average. Thanks in large part to Boeing and Goldman Sachs the index exploded to a new ATH.

Moving forward, we are unsure what to think of the direction of the index. From a technical standpoint it has broken out and is not looking weak by any means, but perhaps a slight retrace to backtest the demand area at 28000 – 28300 could be in the cards.

On the daily chart that area is RBR demand in confluence with a retest of the top trend of the breakout. On the hourly basis we notice in this index the same trading environment as the other ones, consolidation within a trading range. As with the other indexes with this one as well, we advise that you exercise caution and only follow a trend once one develops. Other strategies of trading this is to play the tops and bottoms of the channel with a SL right above/below.

US SECTORS

For the past couple weeks, thanks in large part to Boeing, the Industrial sector has been outperforming significantly. Utilities have taken a little bit of a hit this past week, whereas the technology sector remains unchanged and is still consolidating.

A notable candidate for a dip buying, should a retest down hold, is the energy sector. For the past few weeks the energy sector has regained close to 17%, which needless to say, is quite a bit. If you want to get a more detailed look at the big picture the energy sector is further subdivided into industries such as: Oil and Gas, Solar, Wind, Low Carbon, Coal.

Another sector to keep on watch is materials, as it appears to be consolidating at the highs after outperforming the other sectors for a couple weeks. 

Chart of YTD sector performance is included. 

Catalysts: Vaccine news; Request for emergency distribution of vaccine; Claim of 95% safety rate of vaccine; Thanksgiving; nCoV2019 cases on the rise; Threats of lockdowns. 

Potential Upcoming Catalysts: Joe Biden statement about invoking defense act to enforce nationwide lockdowns (Positive Catalyst)

STOCKS

At any given point in time there are certain news/catalysts circulating that make some stocks better to trade than others. At the time of this writing there aren’t any clear cut catalysts for anything. If we had vaccine/stimulus news we were poised to have money flow out of tech and into value (which it did for a while) and with news of further lockdowns it is back to tech. 

Right now unfortunately, we have a little bit of both. With that in mind, we are going to take a look at the following stocks:

TESLA [TSLA]

CATALYST: S&P 500 Inclusion.

TSLA has successfully broken out of the long-term trading range and seems to be perhaps getting ready for another move up. There is demand for it at the 480 price level and further demand/top range of breakout retest at the 440-450 price level. Should TSLA break below 480 it could be shorted down to 450 where if a retest holds a long trade can be placed once again. If 480 holds however TSLA could potentially run again. Keep an eye out for both scenarios.

ZOOM VIDEO COMMUNICATIONS [ZM]

CATALYST: Spike in nCOV2019 cases; Further Lockdowns; Earnings.

With the Friday breakout of trading range there was little in the way to stop ZM from going up. A price target for 470 this week seems reasonable, however it could first come back to retest the breakout at 430ish before heading up further. Either way, there is no reason to short this stock at this time unless it breaks below 430 at which point it just enters back into the trading range it was before.

With earnings coming up the premiums on this stock are going to be outrageous, so if you don’t have the capital it is best to steer clear and perhaps pick up trading it after earnings are done.

ZM DAILY CHART
ZM HOURLY CHART

PFIZER [PFE]

CATALYST: Request for emergency use of nCOV2019 vaccine.

With these types of things/events it is usually to buy the rumour and sell the news. Well the rumour and the news are both out, which turns this into a sort of trading stalemate. The news that is not out however, is the FDA decision, so because of that there could be still room to position before the eventual news release whether positive or negative. 

On the technical side of things there is not much to say about the PFE chart, it is dull as they come. Stuck in a trading range for months now, with no clear breakout or breakdown it seems the only way to prosper from this is to position for some sort of a catalyst. Nonetheless, included are 2 charts that could serve to help a bit with the decision making.

PFE DAILY CHART
PFE HOURLY CHART

NETFLIX [NFLX]

CATALYST: Spike in nCOV2019 cases; Further Lockdowns

Netflix has been consolidating within the same area for 20 weeks now. It is either going to break down, or it is going to hold the lows here once more to retest the top area at 550+ and possibly print a new ATH. Tech in general has been consolidating so it is no surprise that NFLX has, however there is a darkpool on NFLX at 515 area that we would like to see get filled. 

If the 484-485 area holds on a retest this could present a nice long opportunity to 515 first PT and 550 second.

NFLX WEEKLY
NFLX HOURLY

AMAZON [AMZN]

CATALYST: Holidays; Black Friday

AMZN, like the other FAANGs, has been consolidating for quite a while. Right now it is standing near the bottom of the trading range and should it hold the lows it has the potential to run all the way to 3500 by end of this year with the help of the above mentioned catalysts. 3030-3060 would be an amazing entry to test this theory out should we get a pullback on AMZN, and the SL would be right behind that. Another potential entry is if AMZN breaks and holds out of its recent intraday trading range above 3125.

AMZN DAILY
AMZN HOURLY

WEEKLY TRADING TIP: Sometimes, No Trade is the Best Trade.

As we often say, sometimes the best trade is no trade. As we go into next week, do remember that it is a Holiday week, so this might be a time you stay sidelined and spend time with friends and family. Not only are markets entirely closed for trading on Thursday, November 26, but you can also expect low volume throughout the entire trading week. 

Historically, markets have performed well during the holiday season. However, do not let bias blind you and do keep in mind the technical analysis of the price action as well if you decide to trade. We undoubtedly will.

As always, trade safe, and we will see you Monday pre-market.

Echelon Insight: Weekend Report Vol. XVI