Technology giants reported earnings this week. They failed to do the market any favors in shifting the current bearish structure.
AMZN saw a 10 percent gap lower at the open (as shown below). This drop set the tone for another day of steady selling pressure through much of the market.
After running the scans and updating our watchlist on Friday post-close, it’s safe to say the short side of the market is likely to present the most opportunity.
However, it’s hard to want to heavily short the markets as they are oversold and due for a bounce. Preferably at -2 average true ranges (ATR), we are taking profits on our shorts and not opening new shorts.
So, where do we want to short the setups on our watchlist?
We want to enter our positions as close to the daily 21 exponential moving average (EMA) as possible.
That’s the execution on every short we take. Short at the 21 EMA, take profits on the flush into -2 ATR (or cut the trade loose on a move above our exit), and rinse and repeat.
Almost every sector in the market, along with the indices, is printing our sell signals. These sectors include XLK, XLF, SMH, XLI, IYT, etc.
When this happens, we tend to focus mainly on shorting the SPX itself instead of individual stocks.
It’s a simple game plan, but it’s one we’ll continue putting to work until things change.
For the S&P 500 (SPX), we’ll look for our opportunity to enter a short on any rally into $4,350 with a downside target of $4,100.
In Sunday’s video, we’ll break down how we’ll look to structure the SPX trade and look at other setups on our focused list.
Stay Focused!