Last week was only 4 days, but it sure was long enough to watch a handful of stocks get a lot of people hurt from what one can only assume was a mixture of overeagerness, stubbornness, and poor risk management. Whether it was NEGG, CARV, or SGOC, there was enough pain to go around for people that just like to short things because they are “up too much.”
Occasionally you will see me put these kinds of names on the Sunday Prep, but more often than not, the stocks I highlight in these weekly preps are what many would consider “boring” stocks. But this is by design. I want to draw attention to the fact that there are thousands of stocks out there. You don’t HAVE to trade the flavor of the day to make good money. Often the stocks that everyone else is trading end up being the biggest headaches, especially for newer traders.
I highly encourage you to expand your field of view. Start to look at trades that aren’t necessarily on the “big gap lists” every morning. Start to question whether you actually NEED to trade low float small caps. I personally think it’s a huge mistake that many newer traders make thinking they need to trade low priced stocks because they have smaller accounts. It’s simply not true. It’s often much easier and safer to take a $1 move on a $20 stock than it is to take a 10c move on a $2 stock. Both are completely doable, but that $2 stock can move against you that same amount in the blink of an eye while you freeze up like a deer in the headlights, while that $20 stock will usually give you much more warning that your thesis is wrong before mercilessly punishing you.
I trade small caps all the time, and in fact there are some things I absolutely love about them. But I am also smart enough to always be on guard for those rogue waves. Your risk management needs to be air tight when trading them because the margin for error can be so small. If you’re just learning, you need to ask yourself some brutally honest questions. Are you trading because you’ve got a gambling itch that needs to be scratched? Just chasing the next shiny object? Looking for handouts and alerts? Or do you actually want to learn a craft that can provide for you and your family for a lifetime by making a REAL CAREER out of this? You need to be playing the long game.
$ES / $SPY
Last week we saw the pullback right to the support mentioned in the previous Sunday Prep. And from there it was a straight up bounce back to highs. I personally wouldn’t mind seeing some of the bigger pullbacks start to base for a bit longer before just ripping straight back up. I’m kind of thinking that the more we do what we did last week, the more we are setting ourselves up for a bigger flush that actually reminds people just how far the market can actually pull back if it so decides. But for the time being, it’s business as usual. Any pullbacks next week into support can possibly offer nice areas to get long strong names. Any extensions without a pullback first can possibly offer a short setup on extended names. For the ES, 4400 is still the first area of possible resistance for me. After that, there’s not much in the way, but I would be stalking it for lower highs on higher intraday timeframes if we were to get above 4400. Support levels I would be interested in would be the same ones from last week: the 4270-4280 area, 4236, and then 4214.
$NQ / $QQQ
NQ really is starting to develop a VERY mechanical look to this uptrend. Would actually like to see this roll over for a bit and come back to test the 20d at least, but even better would be the 14000 area. On the flip side, it would also be nice if it could speed up towards the 15000s. But it needs to do it in a more emotional manner for me to think there could be some good shorts setting up in the tech space. It can stay mechanical like this for as long as it wants, but unless it either speeds up into a more parabolic look or rolls over, I don’t really like starting new positions in tech names, short or long.
Again, thoughts from prior few weeks on this space still apply. The long we go sideways, the healthier this becomes. But decided to throw the weekly chart in there this week to point a few things out. You can see the weekly 20sma has rolled over and is now heading down. My guess is that we just stay pinned between the weekly 20sma and the weekly 50sma until they converge. If we can just hang out sideways in this range until that happens, it would be around that time when I would start to think that a large move from this base that has been developing can occur.
Top Industry Groups
Bottom Industry Groups
STRONG STOCKS LOOKING FOR CONTINUATION
Really wish I had paid more attention to this one a few months ago. We traded it but it was only for day trades. This thing looks like it may be starting a much bigger move. I have 3 levels marked (highlighted in purple). The first one is the 9.50-10 area where I would definitely be willing to buy an emotional flush and see if we can possibly end up with a trade that allows us to lock in good profits on a day trade but also hopefully keep some on for a swing. But if it were to be unable to close strong, I would most likely opt not to swing and instead see if we can maybe get a bigger pullback to the 20d/annual pivot in the 8.50 range. At that point I would probably put some on for a day trade AND also put some on for a swing in the longer term account. I would be willing to let that swing move against me with the plan to add at the 50d/quarterly pivot area around 7.
Solar is starting to look good again. You can see this retraced hard last week right down towards the 200d and immediately bounced strong. There are 2 ways I would look to play this next week. Either looking to buy any major emotional flushes down towards 86 risking under Thursday’s lod, or waiting for a break over 94 to signal that I should be looking to buy dips and join trend.
Remember to keep up $TAN alongside the solar names in order to see the overall sector. Also, there are other names such as $JKS which have similar setups and you may prefer to trade them the same way.
OVERSOLD REVERSION SETUPS
Pointed this one out last week on twitter, and it’s already reclaimed the 200d. It may have put the low in, and if it has, I may just miss this trade. What I’m needing is 107-108 to get involved. The weekly 50sma is 107 and the monthly 200sma is 108.46. Even those levels may still be a little early and this may want to eventually test the psychological 100 level. That is why I am being patient for lower prices. It’s always better to wish you were in a trade than to wish you weren’t.
WEAK STOCKS LOOKING FOR CONTINUATION
Only way I will look to trade this is if it gets an emotional pop back into the 20d/50d range. If we get that, I will look to fade the move.
OVERBOUGHT REVERSION SETUPS
This big guy isn’t quite there yet, but will be monitoring to see if it can push a bit more para inot the 420-425 area. If it does, I think it has the ability to offer a really decent retrace. But keep in mind, it MUST get there emotionally. If it doesn’t get there quickly, then there isn’t an edge.
Same thoughts on $ORCL as well, but it’s not as attractive to me as COST, so that is why I’m not throwing it into the prep this week.
The volume on this name has been really high and both Thursday AND Friday had some emotional selloffs, all while having the SSR on both days. Keeping this on watch in case that was just someone trying to shake the tree while at the same time making shorts feel all warm and fuzzy. I’m basically watching to see if this can get back above Friday’s highs. If it does, we may have quite a few shorts that were swinging this that will need to decide whether they want to manage risk or go to war.
That’s it from me this week. As always, things can change as the week develops and all ideas are based on “if/then statements.” New ideas will come and old ideas will fail. But what must remain is our discipline. See you all Monday morning. Peace