The easy money has been made on the long side for now.
SPX made yet another new all-time high during the week, but closed off of those levels. We’ve seen negative divergences on the daily charts for a few weeks, and now they’re becoming more prominent.
As you know, I fully exited my long SPY position this week. This was the first time I’ve been neutral in my market direction bet account since August. It was a great ride, with a 8% gain on the SPY, QQQ and XLK longs, and more on a small SPY call option bet.
That puts me at a nice +65% since I started posting these live market bets in March.
Aside from the profits, I’m equally proud of the execution and discipline in these trades. We had a plan, we stuck to it, we traded simply. It doesn’t always work out that way, but it’s awesome when it does.
Watching and waiting. I’m in no rush to make any sort of immediate trade. I definitely see the negative divergences – not just in the SPX, but in major bellwether stocks like AAPL and SMH that are looking like interesting shorts.
Despite this, I’m still hesitant to put on any shorts or make any sizable put option bets. I think a low risk trade would be to buy some puts if the market attempts one more high early this week. It’s certainly a possibility, though I’m not predicting it. If so, you could see me throw on a small put option bet. I’m playing with house money and the set-up might be there.
At the end of the day though, I’m still more likely to lean towards the buy-the-dip strategy that has worked so well this year. Things are bound to get choppy, but this late in the year, I wouldn’t expect too much downside.
The beauty of being neutral is that I don’t have to guess. I can just wait for some sort of dislocation and trade any set-ups I see. That’s the best place to be as a trader.
3 THINGS ON MY MIND
1. When the market is giving mixed signals, I’m usually much more active trading individual stocks. That’s the case now, where even though I’ve exited my long market bet, I have several individual stock positions, both long and short. No matter what the market is doing, there’s almost always an interesting chart somewhere. Many of these are charts are ones I casually mention in these e-mails or on my Twitter.
2. Bitcoin keeps breaking all supports and is now in full falling-knife mode. Which is obviously where we want to buy at some point. Now reaching levels on the RSI comparable to last November’s lows, we know BTC is oversold. But it can stay that way for awhile, just as it did last year. We’ll wait for a catalyst to buy. This coming bottom might be a significant one though, and I’m prepared for it to be more of a V-bottom than the consolidating, slow-moving bottom of last year.
3. As the holidays approach, take some time away from the screens. I know many of you are not active daily traders, so this won’t be a problem. But some of you are, and have active trades all the time like I do. I’m looking forward to reducing my exposure overall as we approach the new year. After the craziness of last December, it looks like this year will be a more normal, calm end of year.
A CHART THAT CAUGHT MY EYE
I wrote this up as my Chart of the Week over the weekend, before this stock got upgraded this morning. I still like it long, but would’ve loved to have recommended it before this morning’s gap up.
Zscaler plays in the always compelling cloud security space. It’s a competitive sector, but has enough growth to go around. ZScaler supposedly has a unique market position versus both pure-play competitors and the large cap diversified players like CSCO.
Either way, I’m most interested in the chart. Anyone who has taken my course or followed my e-mails can recognize this pattern. Coming off of its lows, we’ve built up a good amount of positive technical divergence on the MACD and DMI.
This past week’s close above the horizontal resistance of the previous lows and the 50-day moving average is enough of a chart catalyst for me to like this long.
Strategy: Buy here, with a stop out in the areas of last week’s lows around $44.