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Market Overview

For quite some time now I have been saying “Do not short the market no matter what”. Even though every person on the internet that has purchased a stock twice in their lifetime and is now selling themselves as an expert is telling you how and why the market is now supposed to crash, all time high represents strength – not weakness.

Shorting the market should only be done when you notice weakness.

The stock market is an instrument that is supposed to go up overtime, so shorting should be done sparingly according to every and any statistic no matter who is sweeping which SPY put.

Not much to update at this time to be completely honest. Going forward we have a short week with Christmas so I don’t expect much volatility personally, but of course that does not mean we won’t get it so let’s keep our eyes open as always.

ES [S&P 500 FUTURES]

Despite selling off a couple of times during the week, ES closed with tremendous strength even as far as marking another ATH on Friday.

Looking forward there is not much to say except there is strength in the index. The fangs have been consolidating for quite a while so they could be due for a move up into their earnings in January which would pull the index up some more. 

For now the floor at 3700 is still in play.

NASDAQ 100

Nothing much to say about this index either except for -just like S&P- it came down to test the breakout levels and buyers showed up in droves.

Unless we go back below that level and stay there, there aren’t any bearish signals to jump at here at the highs.

VXX CBOE VOLATILITY INDEX

Despite the bit of an impulse VXX had throughout last week it is still trending down in the same channel it has been in. There is still that gap to close at 15 and should the market keep making new highs it might even get closed before the end of the year.

One thing of note for now is the RBR at 16.8 – 17.3 +- that it jumped off of this week but should it lose that level 15 seems like an inevitability.

US SECTORS

Bit of a change in the sector picture. This week it was all about tech, whereas the energy sector got left behind as the laggard of the week. Consumer discretionary and materials caught a bit of a bid as well, with the rest giving no indication one way or another. 

Looking at the big picture XLE is still very much down for the year and has more room to go if your outlook is a longer period of time. XLB seems to be showing some more strength here at ATH with the entire week not having a selloff despite the broad market sentiment. 

A little bit of a trivia for you, XLE is the only S&P sector that has negative returns if you take the last 10 years into account – precisely 18.75%. With Biden’s promises on climate change and renewable energy this sector could outperform the others in the next several years, though if you’re playing on that you’re much better off going with an ETF concentrated on those industries rather than XLE as an entirety due to its massive exposure in oil and gas.

STOCKS

BERKSHIRE HATHAWAY CLASS B [BRK/B]

Berkshire has been selling off for quite a while now after the huge gap up from earnings. Not to mention we already know that Buffet initiated his repurchasing at multiple the rate Wall Street expected him to. With that being said there is still that gap to keep in mind on BRK so there are 2 scenarios that could play out here.

The first one is that the gap gets filled, at which point BRK is a no brainer pick up in my humble opinion, and the second one is that it stops here at a higher low post gap up which would make it a good swing as well. Just keep an eye and see how it behaves as it approaches the lows.

ALPHABET CLASS A [GOOGL]

Despite all the bad news surrounding Google it is more than obvious that it is a great pickup if you’re a mid to long term player like myself. The interesting levels on the daily are the gap close + RBR on the daily which spans from 1613 – 1660. Intraday it is below the current trend breakdown as well as below a 4 hr DBD as shown on the chart so unless it reclaims that there isn’t much of a near term long prospect.

COSTCO WHOLESALE [COST]

Costco is “potentially” actionable immediately. It is sitting in the daily RBR with a bottom end at 363 +-. Should it break that down it can go to 357, but as long as it holds this bottom end it might have another run. 370-371 is where the breakdown occurred so if Costco retakes that level it would be a great show of strength.

Earnings aren’t until March so there isn’t any catalyst to move it in a sweeping way, but if buyers show up again where they once did they could squeeze it up to 370 at least.

ALTERYX INC. [AYX]

This ticker was mentioned in chat at 120, but even now it looks like it has potential. Sitting at the bottom of the regression channel from an all time perspective, it looks like it has a bunch of room to run as long as the bottom end stays intact.

Looking at it a bit more zoomed in on the daily it looks like it is breaking out of the tops and as long as 125 holds it could run further from there. Also a daily RBR below at 118-119 level should it decide to retest back in the channel. 

VMWARE [VMW]

VMW sold off greatly on news that linked its software to the solarwind hacks. While we can’t predict how far this news will linger as a big determining factor of price action, on a technical scale VMW is coming into a daily RBR at 132 – 134.

VMW has had a few recent acquisitions including Carbon Black and Pivotal Software (NYSE: PVTL) in order to respond to the shift to the cloud sphere. Trading at +- 30% from its ATH it could be a decent pick up for a swing to at least the 170-180 level.

WEEKLY TRADING TIP: Keep it Simple.

We’ve all been through the same journey. Charts full of MACD, RSI, SMAs, EMAs, Fibs etc. To a beginner trader it all seems so alluring and they keep tacking on indicators until the real information is completely hidden from them. 

I was the same.

That is until I read a book that changed my perspective on lots of things in life, including trading. That book is Thus Spoke Zarathustra by Friedrich Nietzsche. In it he tells a tale of metamorphosis. We are all children at first of course. When we grow up we become camels AKA beasts of burden. As the Dragon “Thou Shalt” (“Thou shalt” is permission; it’s all the moral laws and societal values that have come before that tell us who we are and how we should act.) puts on us layer after layer of expectations -or burdens- we essentially have 1 of 2 options:

Succumb to being a camel and remain burdened, or slay the dragon and become a lion.

After you have slayed the dragon and have become a lion there is another step to self fulfilment – the child. The end stage of becoming a child is very interesting, because it is a full circle. We have gained, lost, learned, loved, hated, all just to come back to a state we once were in naturally. Simply put The child is innocence and forgetfulness, a new beginning, a game, a self-propelling wheel, a first motion, a sacred Yes.

I have personally applied this to trading. When I started I was much like every other beginner trader out there: RSI, MCD, Stochastics, Waves, squares, triangles, bats, hanging men, abandoned babies, and many more things I will not mention because they are endless. What I came back to full circle -and was most profitable with- was what I started with…A simple naked chart with nothing else on it. The chart itself presents all of the information you need and all in real time. Each candle, each tick tells you a story: Who is buying? Who is selling? Where? When? In what quantities? How aggressive are they? 

The indicators you use give this information as well, but they do so with a delay that in my eyes means life or death in a market in which sentiments change every single second.  

It is ok to use some indicators if you’d like, if you feel like they’re giving you an edge, but don’t be afraid to take a hard look at your trading style and get rid of things you think you like using but are detrimental for your account, or as Nietzche would put it “Even God hath his hell: It is his love for man”. 

BOOK OF THE WEEK: Thus Spoke Zarathustra by Friedrich Nietzsche 

Until next time,

Merry Christmas.

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