Echelon Insight: Weekend Report Vol. XVIV

Market Overview

Despite the prevalent bearishness for the week, the market is not in any immediate danger of any large selloffs.

On Friday after hours the PFE vaccine got the emergency use approval, news which is sure to be welcomed with arms wide open especially by those with/or looking to get into exposure into the value stocks and sectors such as retail, industrials, airliners.

Going forward we have OPEX week coming up. Opex is usually nothing but chop so we aren’t expecting anything different this time around. Should we break out or break down we’ll advise midweek, but for now there’s no directionality and finding one in Opex – though not impossible – is highly doubtful.

ES [S&P 500 FUTURES]

For the time being we seem to be trying to retest the breakout which ranges between 3545 -3580, but currently we are sitting above the intraday trendline that connects the tops and bottoms of the left and right intraday price action as depicted on the chart. Should we cross back down and stay there it’s a decent short, otherwise ES looks bullish going forward. 

Meanwhile, according to CFTC data, fund managers have raised their net long exposure by 8,912 contracts whereas specs are increasingly bearish having added another 1,512 contracts to their net short positions. With all that being said, should ES stay above certain technical levels, we could be looking at a short squeeze.

NASDAQ 100

Nasdaq is doing the same thing as the S&P, which is retesting a former breakout. There’s still room to go down to the true retest which lays at 11,800 – 12,000, but that doesn’t necessarily mean that it has to go down that far.

On Friday MSFT hit the bottom of the wedge that it has been trading at and it squeezed up, essentially carrying other stocks with it in sympathy moves and carrying the whole index up. Should this behaviour continue and one of the fangs breaks out, Nasdaq could move up even more into Christmas.

VXX CBOE VOLATILITY

VXX got some movement last week and seems to be breaking out above the current trading channel. Nothing alarming for now, however a new daily RBR demand to watch out for around 16.8 – 17 as well as the gaps above and the gaps below. 

US SECTORS

This past week was the energy sector outshining all the other sectors yet again. Though it got pulled back with the rest of the broad market by the end of the week, it still ended the week in a better shape than the other sectors by clocking in a 1.2% advance for the week and being the only sector ending net positive.

Going forward there is not much going to to separate one sector from another in terms of strength and weakness (Outside of XLE) though the retail industry (XRT) should be on watch for the time being for Christmas and well into 2021.

STOCKS

SNOWFLAKE INC [SNOW]

SNOW is at a pivotal juncture here. 330-350 is a 4 HR RBR demand. If this level holds it is a pretty good entry for a play to 370 first stop and then perhaps beyond if a higher low holds.

Should the 330 – 350 level breaks down SNOW sets itself up as a potential short down to 305 and 270 if that breaks. Either way this should be on your watch if you can afford the premiums.

MCDONALDS [MCD]

We have MCD on watch for a swing. The entry we have on watch is 201, but wouldn’t mind a bit of s chase if it starts to catch a bid here. Obvious PTs would be 215 and 230. 191 is a retest of a previous breakout, and though we don’t think it will go that far it pays to err on the side of caution.

TARGET [TGT]

Target doesn’t trade in a volatile manner like the more popular stocks, but it is a good pickup for a swig if it can test 167 and hold there.

With Christmas coming there is also a catalyst for retail stocks to perform well. Gap down below at 140 if it ever comes to psd is a nice target for leaps.

NORDSTROM [JWN]

Nordstrom is another ticker from the retail world we have on watch. Despite the rally we believe it still has room to go.

There’s a bunch of demand on the downside including where JWN is right now and two more around 25 and 20, though it would take a lot for JWN to come back down so far. It could be an interesting pickup for Christmas if these levels hold, but this is a play for a potential hold all through 2021.

BLACKROCK INC [BLK]

Found this one interesting purely due to technical reasons. Coming into a weekly RBR around 670 – 686 and if it holds there it could run again to contest the old ATH. Suitable for either a scalp or a swing if these levels hold.

ON WATCH

Perhaps some of you have, whilst some of you haven’t heard of this fund but we believe it’s important to keep it in watch.

Recently Nasdaq introduced the QQQJ index which, according to invesco, concentrates on next gen midcap stocks. The fund and index are rebalanced quarterly and reconstituted annually with the current top 5 holdings being TTD OKTA TEAM MRVL ZS respectively.

True to the Invesco Q name this next gen ETF is tech heavy with 47.46% being allocated to information technology. 

For more information on the product visit: https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&productId=ETF-QQQ

WEEKLY TRADING TIP: Risk Management: Take The Guesswork Out Of Trading

Take the guesswork out of trading. Every trade needs to be meticulously planned and executed, whether the execution means the trade results in a win or a loss. Plenty of times traders find themselves in a position where they hold for a longer period of time then they themselves know they should.

For that reason, one should always have a stop loss. Having a stop loss in mind is not enough, it is very important to act on it and execute with no remorse. Not every trade is going to go your way, that is a given. However, if your average win is, say, 40% and your average loss is capped at 20% it takes only one win to get rid of 2 losing trades.

See, most traders think being profitable is about always picking the right stocks, and always making the right decisions…And while, yes, trades should be taken after a lot of thought has been put into them, the bulk of long term profitability comes due to smart risk management and trade practices. 

In the book The Prince/El Principe, which was written for Lorenzo di Piero de’ Medici by Niccolò di Bernardo dei Machiavelli, there is a passage where Machiavelli speaks at length about the importance of balancing good vs evil.

In it Machiavelli tells Medici how a ruler should (I am paraphrasing) take any good deed he makes, no matter how small, and stretch it over vast amounts of time. 

On the other hand, should an evil act be performed, it should be done very swiftly and decisively. This is a psychological trick. When a good deed is stretched out, no matter how miniscule, it is all the masses see day in and day out and therefore it becomes prevalently connected to the name of the ruler. Whereas the evil act, when done swiftly, gets noticed but over time vanishes against the backdrop of the more prevalent stretched out good deed. 

With that in mind, and thanks to Mr. Machiavelli, I have come up with 2 cardinal rules in my trading:

  1. Observe and enact the stop loss every single time without fail. No matter how much I am convinced the trade is going to start going my way I take the loss decisively and move on.
    – This is the part where we act swiftly and aggressively when performing “evil” acts.
  1. When a trade starts going my way, I wait for it to pull back into a level that I am comfortable with and I average up. I almost always average up my winners and ride them over time. Averaging down is throwing money at a losing trade, whereas averaging up is accumulating a bigger position into an already winning trade. The worst that can happen at this point is the trade ends up being breakeven.
    – And this is the part where a good deed, no matter how small, gets stretched out over time. 

RECOMMENDED BOOK: The Prince – Niccolò Machiavelli 

Favourite quote: The wise man does at once what the fool does finally.