The bulls continued to punish the shorts this week, as both the Invesco Trust Series 1 (QQQ) and the SPDR S&P 500 ETF Trust (SPY) rallied into brand new all-time highs (ATH). Though it’s difficult to tell by looking at a chart of the SPY (below), this is not a “market-wide rally.” All of this momentum is being driven by the strength in technology and semiconductor stocks, and that’s where our focus will be to the upside over the next few weeks.
The most important thing to take into consideration right now is that the indexes (see NDX below) are very much extended, as are leading names like GOOGL, NVDA, MSFT, and many others. Without a doubt, technology is where the leadership is right now, but with the index so extended we need to position size appropriately. We save our big positions (10% risk) for when the indexes are setting up at the 21 exponential moving average (EMA) and we scale down in size once the indexes are at the 2-3+ average true range (ATR) extensions. By making this slight adjustment, should the markets dip before the next leg higher, we won’t take too much damage.
This week, we took advantage of hourly squeezes in both TSLA and GOOGL (see below) that led to some great trades in the options room. Our TSLA put credit spread was bought back this morning for 75-80% of max profit and the GOOGL calls we bought at the open served us incredibly well. Simple setups, simple execution, and we are ready for the next one.
Over the next few weeks, we will have a big focus on AMZN (chart below) as it approaches earnings. Very much like last quarter, the stock has fired a daily squeeze, pulled back to the 8 EMA, and is now resting on the moving average with a handful of lower time frame squeezes setting up. This setup, and the push into earnings, was our biggest trade of the year last quarter. In this Sunday’s prep video, we’ll cover how we’re looking to trade it this time around.
We hope you enjoy the long weekend, spend some time with family, and are well-rested for next week!
Stay Focused!