With the markets still extended, now is the time to scale down in position sizing, while still focusing strictly on the cleanest setups (in the strongest sectors) of the market.
While technology is the clear leader at this point, the extended charts of AMZN, MSFT, and others in the technological sector do not offer attractive entries at these levels.
The semiconductors, however, do look like attractive entries here. SMH has our favorite combo: a weekly and daily squeeze, both of which have the bullish structure we’re looking for in this market.
Over the next handful of weeks, we’ll be scoping out opportunities in the semiconductor space in setups like AMD, TSM, and others. Check out the video below to get a full rundown of our trading plan for next week.
Another week in the books, and we’re continuing to see the same theme we’ve seen over the last month: crazy bullish and crazy extended. The markets continued their wild grind higher with another push into new all-time highs (ATH), with no signs of slowing down.
SPY Daily Chart
This week, we nailed a great trade on AMZN, as we came into the week with a 4-hour squeeze firing off the 8 exponential moving average (EMA). We entered on Tuesday morning after the opening bell and closed out the trade quickly, as we bought back the put credit spread yesterday for 70% of the max profit ($7,400). This is a smaller position size than usual, but we are happy to take advantage of opportunities like this in an extended market.
AMZN 4-hour Chart
While we would love to see a healthy pullback before getting aggressive with larger position sizes on our long trades, there’s no guarantee we will be gifted one. What we can do for now is pick our spots wisely and simultaneously decrease position sizing.
As we optimistically wait for a reversion, we’ll be watching a few weekly squeezes next week in names like SMH, AMD, and SHOP. These all have a very bullish structure that fit our criteria perfectly. If the bullish party continues, these are the kinds of setups (as always) that we’ll be focusing on. In this Sunday’s newsletter, we’ll break these setups down in more detail and cover our game plan moving forward.
With the market finally giving us a much needed pullback, it’s time to step back and analyze our next opportunities! We’ve been waiting for this to happen for a while now, so let’s take a look at where the markets are now.
We’ve seen the markets rally higher every time prices hit the daily Ichimoku Cloud, and now we have finally seen them gap down. The question is, how low will they drop? The major indices can be used as a compass to determine direction, looking at the S&P 500 (ES), Dow Jones Industrial Average (YM), and the Nasdaq Composite (NQ). The YM continues to drag the markets down as the lagging sector, and investors shifted their focus on the NQ.
We can use the intraday and 4 hour clouds as a guide to see if prices will continue to move lower or if we continue to the mean. We can use Keltner channels as well in order to establish when we should buy the dip. Now that the markets popped and reset, it’s a patience game to see where we will go next. Focus on the key zone around Tuesday and Wednesday’s lows for a sign to rise to an all time high or revert back down to the daily mean.
Keep a tight focus on VIX, ROKU, NVDA, SHOP, SNOW, and AMZN. Check out the video above for a more detailed view of the markets.
The market is very strong right now, but we don’t know where things may go from here. We recommend sizing down in order to protect ourselves a bit as we are at some very extended levels. The Ichimoku Cloud and average true range (ATR) will continue to be great indicators to watch as you plan for the week ahead.
Here is our focused list:
FB – Watching to see if it will squeeze under all-time high (ATH) for a breakout toward 360+
GOOGL – Firing daily squeeze and 4-hour squeeze. It has accomplished its mission of hitting 2500 and could continue towards 2550
ROKU – Stalking a pullback and seeing if it will base towards 420. It could potentially work its way back to 463
SHOP – Watching daily wedge and 4-hour Cloud for a push back towards ATH
With technology being the clear leader in this market, and quarterly earnings just a few weeks away, it’s time to look for high-probability setups in the leading names. We want to focus on names that are trading near the buy zone, as opposed to extended at 2-3+ average true range (ATR) levels.
One of the names we are choosing to place extra focus on is AMZN. This is showing a beautiful weekly squeeze along with a series of lower time frames setting up on a key level of support. We are looking to place a trade for a move into brand new all-time highs over the next three to four weeks.
Last quarter this same setup in AMZN resulted in our biggest trade of the year, so we’re hoping it performs in a similar fashion this time around. Watch the video below for other tickers where we can make moves.
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.
SPX/SPY Chart
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.
NDX Chart
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.
GOOGL Chart
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.
AMZN Chart
We hope you enjoy the long weekend, spend some time with family, and are well-rested for next week!
The market this week has been bullish and extended which makes for some fun trading. We’ll continue to drive the following point home: the daily Ichimoku Cloud has and will likely continue to be a great compass for buying dips as the overall market, or E-mini Futures (ES), continues to reach new all-time highs after bouncing off the Cloud.
Keltner Channels are another good indicator to keep an eye on at the moment, especially the 2+ average true range (ATR) lines, since they seem to be working as a limit for the market. This means that as we near the 2+ ATR line we need to start playing a bit more defensively. Watch the video below to see how we can use the hourly and 4-hour Clouds as gauges for market moves and also how the Non-farm Payroll (NFP) job report may affect things tomorrow.
The way the market has been lately can test many of us psychologically and even physically, leaving us exhausted and stressed at the end of the day. This week we want to take some time away from the charts and focus on something many traders tend to neglect — ourselves as people.
Balance is key when it comes to performing at optimum levels as a trader. If your goal is to become the best trader you can be, then the information below should be seen as pieces of a larger puzzle that should not be ignored.
Proper Nutrition
We’re sure many of you have heard of traders that sit at their desk all day looking at charts and eating junk food. If this is you, know that you’re not alone, but also recognize that this could be very detrimental to your trading. We like to focus on proper nutrition and foods that will give us the natural energy needed to fuel our bodies throughout the day. This means no fast food and no sugary drinks. Water is your number one friend if you’re thirsty and home-cooked meals that have the least amount of processed ingredients are paramount. If you don’t have the time to cook for yourself, we recommend you find yourself a supplement that meets your body’s nutritional needs. We drink green juice every morning (Chandler getting his glass below), and feel the difference in our bodies. There are many different supplement brands out there, find the one that works best for you.
Chandler’s Green Juice
Exercise
One thing that we swear by, is working out in some way. Your body is your temple and keeping it in tip-top shape is very important. Whether you hit the weights (Taylor’s morning workout below), practice Brazilian Jiu-Jitsu, or just go for a leisurely stroll every day, getting some physical activity in daily will bring you health benefits. The benefits can include: reduced risk of cardiovascular disease, reduced risk of high blood pressure, stronger bones and muscles, etc. This also does two things that are extremely beneficial to traders: 1) reduce stress 2) increase mental clarity. A less-stressed trader can execute trades with unrivaled focus. We’re all about focus.
Taylor Deadlifting
Proper Rest and Sleep
Trading is mentally taxing to say the least and if you’re doing some exercise to go along with it, then you need to let both your body and mind rest. When we don’t get enough rest, we feel a lack of focus and energy and no one wants to be sitting at the charts with no energy and a foggy mind. That is a recipe for disaster. We recommend getting a good 7-8 hours of sleep, and taking some breaks from the desk when you feel the need. Blue light glasses are also something worth looking into, especially if you sit at your workstation the majority of the day.
Work-Life Balance
Last but definitely not least is “work hard, play hard.” If you are doing your best day-in and day-out to be in the best physical/mental state so your trading improves, then you deserve to spend some time doing the things you enjoy. We like to dabble in some healthy escapism by watching some basketball, playing some video games every once in a while, or just going on drives. Whatever gets your mind off of the everyday “noise” and leaves you with a fresh mindset is worth doing. Spending time with your loved ones is highly recommended, too.
“As within, so without”
― Hermes Trismegistus
Always remember, your outer circumstances will always reflect your inner state. Take care of yourself and the benefits will spill over into other areas of your life. Trading included. Happy Tuesday everyone.
The most important (and for many the hardest) part of swing trading is waiting and patiently standing by until the ideal entries and setups present themselves, then making the right move to take profits.
Right now, we have to follow our rules and wait for pullbacks to offer better entries. Leading names like AMZN, GOOGL, NVDA, and TSLA all look promising, but entries at their current extended levels aren’t worth the risk.
Watch the video above for a more in-depth analysis.
After finishing last week with an ugly flush to the downside, the SPX (shown below) bounced back with a vengeance, hitting a brand new all time high (ATH) to finish the week.
Chart for SPX
The bounce and the move to new highs were a big “change in tone” in comparison to how we finished last week, and this sets us up for a very interesting next few weeks.
While the indexes look strong, many of the stocks on our watch list are far too extended for new entries. Our leader as of late, technology, is the first place we’d like to get long, but we simply can’t take entries with NDX, GOOGL, FB, MSFT, and other tech stocks trading above +2 average true range (ATR) on the daily charts (shown below). This leaves us patiently waiting for a reversion to the mean, which is a pullback to the daily 21 exponential moving average (EMA), before we jump into long positions.
Chart for NDX
Chart for FB
This also raises another question; if tech should pullback, will this “stick a fork” in the overall market’s push higher? Without a doubt, this is where the strength has been, and it’s this strength in tech that has kept the market grinding higher, even as sectors like XLI (industrial) and IYT (transportation, chart below) lose their bullish structure. If and when tech does come back down to earth, the market will need to see other sectors step-up and “take the baton” to avoid an overall loss of momentum.
Chart for IYT
With the markets currently extended at the highs, we will continue to hold our SPX call-credit spread as we have plenty of time until expiration; this position will serve us very well should we see the markets pull back a bit.
This week, we hit GOOGL with a quick put-credit spread (we entered in the 1 hour squeeze), and bought the position back for 75% of max profit this morning. With the markets extended, we’ll continue to look for these shorter-term swings off of lower time frames, but we will continue to wait for a pull back across the board before we start opening bigger positions for swing trades.
