- 1 Market Overview
- 2 ES [S&P 500 FUTURES]
- 3 NASDAQ 100
- 4 VXX
- 5 US SECTORS
- 6 US INDUSTRIES
- 7 STOCKS
- 8 FAANMG INDEX AVERAGE
- 9 FACEBOOK [FB]
- 10 APPLE [APPL]
- 11 AMAZON [AMZN]
- 12 NETFLIX [NFLX]
- 13 MICROSOFT [MSFT]
- 14 ALPHABET GOOGLE [GOOGL]
- 15 TRADE UPDATES
- 16 WEEKLY TRADING TIP: HAVING A PLAN IS EVERYTHING.
New ATH across all the major indices. The week finished very strong, with Russell leading the way to an all out squeeze to finish out the trading week.
Looking ahead we still have Christmas coming up as a catalyst and the transition into the Biden presidency. On the vaccine front the United Kingdom has officially become the first to approve the Pfizer vaccine which undoubtedly is going to lead into major approvals here in the United States, in which case the only roadblock becomes the distribution. Let’s get a more detailed and technical view on the major indices.
ES [S&P 500 FUTURES]
ES finally broke out of the intraday trend and reached 3700. 3680 was an area of interest as it was the intraday top to be broken and now we’re finally above it. If you look closely at the chart you will see that there is a connecting top across the previous 2 that lead to present day 3700, so for future bullish scenarios we will need to see ES trade above 3700 on volume and if it does that it will keep making new ATHs.
Future “predictions” of where it might stop and retract are inaccurate to a large extent, but for a ballpark if we apply fibonacci we get 3780 as a ballpark target. On a smaller time frame 3680 is a retest of the intraday breakout on ES so if that holds it is a good level to position for the next leg up.
Nasdaq 100, as mentioned in the previous letter, was already broken out and looked good for a new ATH. Now as we go forward, on the downside, we have a clear area where NQ might come down in the future to retest – which is the top of the breakout as shown in the daily chart.
Depending on when this eventuality occurs, the levels stretch from 11,950 as a top and go down as time goes. Intraday we have a 4 hour RBR at 12,350 average that has a confluence with a test of the breakout if we draw a line across the previous tops.
VXX was trading in a range for much of the week, and one thing of note is that the lows are still holding despite the ATH made on ES on Friday. Nothing changed since the last newsletter with a gap down to fill remaining at the 15 level and a gap above at 24.5. If you switch your charts to the 4 hour you can see it’s trading in a wedge that is getting smaller as time goes, so it’d be prudent to watch the intraday chart for clues going forward.
Energy continues with its dominance and full on rotation into it. The technology sector is inching ever so closer to breaking the old ATH as well. Financials are starting to overtake real estate while there is some clear weakness to be seen in utilities. Health care can be seen dancing around previous highs and should be put on watch for a potential breakout.
If we zoom in and check out the weekly performance of the industries we can even better appreciate the dominance of energy ending the week at 2% higher than the runner ups.
If we zoom into the sectors and look at the underlying industries we can clearly see that clean energy has been on a rally unlike anything else this year with near 200% YTD performance outperforming the second strongest sector (Semiconductors) by 120%. Oil services and oil and gas are the least favourable industries this year with a return of -27% and -21% respectively.
Looking forward despite the amazing returns by clean energy YTD we believe that under a Biden presidency, with the green new deal, there is much more to go in this industry through the years so if you’re an investor it is not too late to start accumulating. Retail has for the past few weeks/months also rallied quite a bit and have started overtaking many other industries in terms of returns so it’s a good industry to keep an eye on. Water resources have been pretty flat even throughout the big drop in March but with the introduction of water futures this might be a good industry to keep an eye on.
Zooming in on the weekly returns the picture is opposite with clean energy being the laggard and oil and gas showing much strength along with semiconductors. Gold miners are showing some strength as well and if miners hold level at 34-35 it could be a good entry for a long swing.
Looking forward there aren’t any specific catalysts to make us concentrate on one batch or the other. Only things coming up are Christmas and the usual shopping frenzy that surrounds this time so you could look at some online retailers to position yourself for the Holidays.
Nevertheless, let us look at some stocks that show some potential one way or another, and this time around, for better or worse, we are going to concentrate on the Fangs + Microsoft as they have been out of favor for quite a while and just trading back and forth in a predictable range. As we know trading in a range can mean 1 of 2 things – Accumulation or Distribution. With that being said, let’s take a look at our favorite monopolies.
FAANMG INDEX AVERAGE
As stated previously, the fangs have just been chopping around with no direction and this chart is a very good visual representation of the trading conditions. Trading up and down in a predetermined range and creating a wedge of sorts along the way. We wanna see this index pop above 6270 and if that happens there is a good probability one of the fangs is going to carry this to a new ATH.
Facebook showed some strength this week and tried to go for the breakout, but failed at the last hurdle which was 290-291 as you can see on the chart. 268-270 remains the bottom of the wedge where FB has been trading with a gap close at ~277.
Looking at the intraday chart there is a 4 hour RBR at the aforementioned 277-278 level and there is where the buying impulse originated. Should buyers step up and defend this area it is a prime entry for a potential breakout after which the price target becomes ATH and 330 beyond that according to option flow.
Though not quite – as lines are subject to the drawer’s imagination – this particular ticker does look like it has potentially broken out. If that is the case we are looking at 115-116 as the bottom should AAPL decide to head south and retest the breakout. On the upside 125 is clearly a previous top where sellers stepped up and should that get broken up and held as a buyer’s zone AAPL can easily stretch out to 131.
On an intraday level there is a 4 hour RBR at 120 level that has been tapped once, but if AAPL trades into it and posts a higher low this could be the confirmation for an upcoming run as it would be a confirmation of hold after breakout the local top.
AMZN on the other hand has most definitely not broken out no matter how strong one’s imagination is. 3270 – 3300 still remains the top of the wedge and the level to be broken up and held as a new buyer’s zone. For now it is still looking healthy with anything above 3125 being a local higher low and looking forward to Christmas just might be the catalyst it needs to finally get going.
Under 3100 AMZN falls out of the wedge and is no longer a subject of interest. As far as why AMZN is having such a tough time if you look at the intraday chart you will recognize 3120-3150 as an hourly DBD. So if that level gets broken up AMZN should be good to go for a complete breakout.
Just like the other ones Netflix has been trading in a range for quite a while, however Netflix has definitely broken out of that trading range last week and gave us a high of 508.
Furthermore, Netflix came down to test the breakout at 490 level and held it so as long as 490 doesn’t break we strongly believe NFLX will see 525-530 levels shortly. If 490, give or take a couple points, breaks it opens up a door for possibility of 470.
Microsoft has been trading in the same range as well, making a high of 228 a few weeks ago only to be sent down to 208. As impulsive as the selloff was from there it resulted in a higher low at 208 over 200 creating a wedge pattern that Microsoft keeps trading in.
It is approaching the end of that wedge with 217-218 on the upside being a clear breakout and sub 206 being a potential breakdown but still a higher low. Looking forward there are some calls long for 230 so if the breakout does occur that is the price target.
ALPHABET GOOGLE [GOOGL]
Google is one exception to the chopping rule. Google is already at an ATH and leading the rest. For future reference there is a gap close and a daily RBR with confluence of breakout test at around 1600-1650 which is a good target to get long on in the future if it does get there and hold. Looking at the intraday chart there is a 4 hour RBR at the 1780 – 1800 level which could be a good entry for a long if it holds.
270 C For January
Current P/L: +650%
We’ve been lugging these around since October and they are finally paying good dividends. Sitting pretty at 650% gain I am still personally keeping these. If you are feeling queasy go ahead and book profits however myself I am going to keep a good amount for them to ride ITM. If BA starts breaking down we can maybe dip and get in later but for now 270 looks good.
220-230 C for next year July.
Current P/L: -1.2%
Needless to say I expect these to go ITM. As a matter of fact if a new ATH can be established on MSFT 300 is most definitely not out of the question next year as it has relatively been vastly underperforming the other stocks in its class. You can hedge with weekly puts if MSFT dips below 214 and can’t reclaim and average down with profits at the bottom of the wedge.
Ratio should be 1:1.
December 18 65 C
Current P/L: +30%
Currently sitting at 30% profits. You can elect to just book profits if you’d like but myself I am holding this as a lotto. Won’t be hedging or paying much attention to this one until it gets close to ITM if it does indeed get there. It’s a zero or hero for myself, but as it is 30% profitable you can choose to do with it what you will.
Current P/L: +50%
470 C for January
Our 470 calls for January are deep ITM and up a significant amount. I will leave it up to you what you’d like to do with this. Personally I rolled some profits into 500 calls for January and if this goes below 480 I will hedge it up with weeklies to protect the profits.
Various Strikes January – March exposure
Current P/L: +40-60%
This is January – March exposure and all of the contracts are very much up as we caught the actual bottom on this one so congrats to all holders. I really wanna see this one break above 230-232 and find some buyers there, but if that doesn’t happen you can short weeklies and hedge up. Either way, very profitable trade, don’t let it go to waste.
60 – 100 C sweeps
Current P/L: +100 – 300%
I expect these to go ITM over time and offer much more drastic returns but we’ll talk about that as time goes. For now INTC is rejecting off of the 52.6 level so you could if you wanted to hedge this down to the 49-51 level. I myself am just going to probably sell calls against it if it can’t break 52.6 and then accumulate even more contracts for 2022 – 2023 exposure.
January 170 C
Current P/L: -30%
This is the only red one for now. January exposure and it is down 20%. I am still holding on to it but might rethink if it breaks below the low. I wanna see 148-149 level hold. If that doesn’t I might just take the loss on this one.
WEEKLY TRADING TIP: HAVING A PLAN IS EVERYTHING.
Having a game plan is everything. If you go into trades blindly you will lose blindly. Not only that, but the few times you do manage to eek out a profit will go into creating negative habits of thinking it’s ok to keep doing it.
Trading is like a chess game, and the opponent is yourself. Not the market, or the MMs, or the hedge funds…It’s you. Many traders think they have to “beat the market” but there is no such thing…We trade with the market, not against it.
Trading is a very tough psychological game, so make sure you do not stack the odds even further against you. Have you found yourself many times taking profits at 10% only to hold a 80% loser hoping it will come back?
That is a direct result of your unpreparedness to wage war for the day. In your mind you have won the trade even before you put it on, but having that mindset leads to the state of not knowing what to do when the trade goes red, because for you losing a trade is a completely unexpected and impossible outcome. But it isn’t. It’s reality.
Have a game plan and stick to it. If you do not have one…Develop one. Everyone’s account, emotions, character, personality are different so there isn’t one golden thing out there that will work for everybody. Last but not least, if in doubt, buy yourself time. If you’re not very confident in the potential trade, and you do not have a clear cut plan for what you’re going to do but feel like there’s more than meets the eye to a particular ticker, always buy time. Options are time sensitive instruments, so when you buy yourself time it’s just another thing you have in your corner rather than another thing working against you.
Getting lucky once or twice is not all that hard, but 99% of the people that get lucky proceed to give the wins back to the market rather than continuing to get lucky and making more. The 1% of the people that do not give the money back are those that either get out completely or actually try to learn how to trade.
Always have a gameplan, always have a strategy.
Recommended book: The Art of War by Sun Tzu
Favourite Sun Tzu Quote: If you wait by the river long enough, the bodies of your enemies will float by
Interpretation: Be patient. Wait out your trades and always have a plan. There are 2,800 stocks trading on the NYSE, there are opportunities everywhere, so rather than chasing trades just to get burnt, be patient, and wait for your trades to come to you.