Another crazy week for the markets is in the books and both the Nasdaq (NQ) and S&P 500 (ES) closed at brand new all-time highs (ATH) today – and the Dow hit 35,000 for the first time ever. While the market looks incredibly bullish from a chart perspective, this recent rush higher has masked a lot of the selling pressure bubbling below the surface.
The small caps, Russell 2000 Index (IWM), and sectors such as energy and transports continue to break down and lose structure. At this point, this entire market is being driven by big technology stocks, rather than finding strength across the board.
Next week should be an incredibly important one for the market as technology stocks are set to start announcing quarterly earnings. Will the market continue to rally after earnings? Or, is this nothing but a huge push into the announcements before we finally top out?
How high this goes is the big question at this point. While we have no plans on shorting technology or the S&P 500 (SPY), we certainly don’t have any interest in taking large risks with the market so extended. Therefore, we will be going into next week waiting for a pullback to offer fresh potential for high-probability entry opportunities.
The semiconductors continue to look phenomenal here with a beautiful weekly and daily squeeze setting up (see chart below). We already have some exposure in the semiconductors with our position in AVGO and we will be covering a few more that we are keeping an eye on in this Sunday’s video.
This is a fast-moving market and with that comes the need to stick to your rules now more than ever. This week we opened a position in NET and took profits two days later as it ran through the 2+ average true range (ATR). In this wild market, could it have continued to rally? Absolutely! With the markets extended, is now a good time to get greedy? Absolutely not!
Focus on clean setups, stick to your entry and exit rules, and scale down in position size until the next meaningful dip. That’s our plan for now! Keep an eye out for Sunday’s e-letter, where we’ll get into the details of the next few setups we’re looking to trade.
Stay Focused!