MARKET SUMMARY (7/28/19) – Fed Week

Look, I get it.

Bull markets aren’t that exciting. In the world of Financial Twitter, CNBC and trading blogs, it’s way cooler to make a bold, contrarian bearish crash call that sets you apart from “the masses.” It makes most traders feel smarter when they can make money when the average passive investor is caught off guard.

But the market is speaking loud and clear. It wants UP.

Charts are strong with multiple levels of support well below. Technicals continue to grind higher. And my personal unscientific gauge of how angry bears are continues to tell me sentiment is still way too negative. This past week’s rally to new highs left the bears noticeably frustrated after the glimmer of hope they had the week before.

Obviously, there’s plenty of bearish fundamentals that “geniuses” on Twitter are swamping your news feed with. The usual suspects like global economic indicator data weakening, high valuations, earnings misses, blah blah. They’ll only matter when they do. For now, we’ll let the market tell us when to get bearish.

This being Fed week, things might get interesting. Daily technicals have been showing divergences, so maybe that’s the set-up for the very consensus expectation of a sell-the-news event.

With the market rallying up here, its due for some pause. But in the extreme world of anxious traders, pause doesn’t always mean a tradeable pullback.

Long-time followers know exactly which chart i’m going to bring up, but for new followers, here it is again, the old 2016 chart that has been rhyming well with this breakout.

I’ll use this as a potential guide until it’s negated. I still like the idea behind it. At the end of the day, it keeps me on the sidelines, certainly until we get some sort of big move and sentiment shift that we can trade.

Longer-term, nothing has changed. I expect the market to continue to be bullish well into next year and I’m looking to buy any decent market pullback.

5 THINGS ON MY MIND

1. Trading the Fed is basically luck. Everyone is positioned and hedged, and there’s massive algo and program trading ready to move the market wildly. Sometimes it’s sell the news, other times when everyone is positioned offsides, it reacts how you would expect. It’s unpredictable, so I try to avoid it.

A couple weeks ago the contrarian in me would have guessed that a 25bp cut would’ve rallied the market. Why? Just on the idea that everyone at the time was expecting 50bp, so a 25bp “disappointment” could’ve actually triggered a surprise rally just to confuse people. 

Right now? I’ll stand on the sidelines and just watch.

2. Semis are due for a pause. They’ve been leading the market and the tech rally, and honestly haven’t shown any signs of stopping. It would be nuts to short anything here, but I’d be taking profits on longs at least.

3. Bitcoin is now really confirming a big choppy range. Any bull or bear set-ups aren’t really working for any big move. Its definitely bearish biased though. After the latest failed rally attempt, and with technicals pointing down, my best guess is there’s more downside coming.

4. On June 17, I posted a list of 8 stocks on my Twitter (@marketmind3). It was just a few names I thought looked interesting as long ideas. They ended up doing A-OK: every single one is up since then, 6 of the 8 outperformed the S&P 500, and a couple of them are monster winners +26% and +55%. Not bad returns for about a month’s time.

5. I’ll post a new list of individual stocks I like shortly, for subscribers only. I won’t tell you how to trade them though, it’s just too subjective to peoples’ ability to actively monitor and trade their positions, their risk appetites, etc.

A CHART THAT CAUGHT MY EYE

CSCO – Cisco Systems

As the market rallies, its always good to keep an eye on individual names that might be shortable.

CSCO is a nice, somewhat safer short than some of the momentum growth names that could get bought or gap up huge on earnings.

Negative divergence on technicals with a potential trendline break imminent. Keep it simple. 

Strategy: I would be shorting or selling on a trend break into that red target range. I like the obvious easy stop right at those previous highs. Adjust to your own risk appetite.

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