This week the move into new highs that we’ve been waiting on from the QQQ exchange traded fund (ETF) finally unfolded, and we used that momentum as an opportunity to take profits into the strength.
With the boost of strength in QQQ, GOOGL (shown below) moved nicely into the 2+ average true range (ATR) extension this week. With that we bought back our put credit spreads to lock in the profits. All in all, we’ve closed just shy of $20,000 in profits on GOOGL from this move that started with the daily squeeze a few weeks ago.
With tech stocks now extended to the upside, and other sectors such as industrial (XLI), transportation (IYT), financial (XLF), and energy (XLE) showing some pretty big distribution, we are looking for the daily squeeze in the SPY (shown below) to fire to the downside over the next few weeks. One by one, as different “pockets” of the market start to sell off, this puts a lot of pressure on the index itself.
Technology could lead the way, but the charts are too extended here for new entries. As good as the tech charts may look, the downside pressure of the SPY potentially firing short could cause a move lower in tech as well.
As the saying goes, “as goes the markets, so goes the stocks.” With that being said we closed COST this week for small profits as we’re skeptical of the overall market here.
Moving forward, we suggest decreasing position sizes on longs and taking serious consideration to having a few hedges open. On Thursday, we sold an out of the money (OTM) call credit spread on the SPX with short strikes at 4,300 (chart above). We are looking for a flush to the weekly 21 exponential moving average (EMA) over the next few weeks. In Sunday’s newsletter, we’ll take a closer look at that trade and a few other potential setups we’ll be keeping an eye on.
Stay Focused!