MARKET SUMMARY (12/9/19) – STILL CAUTIOUS

The markets move fast, and so too has my trading lately.

Like many traders, I always see opportunity somewhere. While I usually try to focus on swing trades that I can hold a few weeks, I saw a decent set-up for a short a few weeks ago. I bought some puts and then I ended up closing the position quickly for a nice +300% return in two days.

In the back of my mind I’m always operating with the assumption that the market is still in a strong bull market that should last well into next year. That makes me nervous to hold any shorts too long, especially when I have nice, quick profits.

The week ended on a high, with brief early week weakness quickly erased and the market rallying back to the highs. On a daily basis, technicals look ready to turn back up for another daily run.

However, the weekly technical charts look ready to at least pause, and SPX prices closed the week with a possible hanging man candle. As with any candle, we won’t know if this set-up plays out as bearish until we see how this week trades, but it’s worth at least watching and considering this bearish scenario.

For sure, the market could get hit with a pullback at any point. Many metrics are overbought and daily charts could turn down and confirm the negative technical divergences that have been building.

So once again I’m in wait and see mode. I’m more inclined to attempt shorts at this point, but I will once again keep them small with defined stops. 

In the meantime, I’m still waiting patiently for a set-up similar to the August and October lows which produced that perfect amount of fear and bearishness. Those are the points where most of my profits for the year have been made and will likely produce another great buy-the-dip opportunity.


5 THINGS ON MY MIND

1. With a sizable 81% gain for the year padded by my latest put option winner, I’m in a comfortable position to finish the year strong. Profitable trading is as much about money management and psychology than it is about the actual technical analysis and execution.

I’ll still be looking for opportunities, but when signals are mixed as they are now, I’ll be much more patient. Forcing trades is the last thing we want to do here.

2. If I’m really looking for potential trades, I’ll look at any chart to see if i can uncover some sort of trade potential, even if it’s short-term. In that vein, I see Friday’s rally as potentially hitting dual resistance of the previous high, and a fairly dominant short-term trendline. If the SPX reverses here, I wouldn’t be surprised.   

3. It’s not hard to find bearish individual stock charts out there, especially among big-cap bellwethers and market leaders. That tells me the market might still have work to do on the downside.

4. I don’t discuss fundamentals too often, especially when it comes to the big economic and macro data and headlines. I’ve always been in the camp that the market is efficient at discounting most known events. For example – the trade war. I agree that the market has short-term knee jerk reactions to the trade headlines and Trump tweets, but let’s look at the big picture. We have no trade deal or any prospects of an imminent one. Arguably, I interpret some of the recent rhetoric as confirming no deal is happening anytime soon. And yet the market is still trading near its highs. In other words, other than short-term moves, I just don’t think the market really cares. 

5. Bitcoin held the support it needed to. It won’t get bullish until we can start breaking above resistance, but the overall chart looks OK and MACD is almost into bullish territory.


A CHART THAT CAUGHT MY EYE

BYND – Beyond Meat

BYND has been a popular stock to trade, talk about, make fun of, etc. It was a highly publicized IPO earlier this year, with both bulls and bears discussing its unicorn valuation and growth prospects. The old school fundamental valuation investors mocked it and were proven right as the stock tanked from its nosebleed highs.

I’ve tried Beyond burgers and ground beef a couple times. I’m a meat lover and thought they were fine, but not revolutionary. Of course, I’m not the target market. I do know a restaurateur that thinks the Street is underestimating the market opportunity. Apparently, preparation (seasoning, creating recipes, cooking times, etc.) of a BYND burger is much more similar to prep for a normal burger than a traditional veggie burger. That makes them highly appealing to average restaurants looking to serve the vegetarian market.

Either way, I’m focused on the chart. After a meandering bottom, we’ve built up plenty of positive momentum divergence. With a high 18% short interest, I like playing it as a long since any rally could produce sizable gains in a short period.

Obviously, this is not for the faint of heart. If you can stomach some decent losses in exchange for big gains, this is one to watch. I’m playing it with small, don’t-care-if-I-lose-it-all, call option positions (January $90 and $100 calls for example). I’m making small-sized bets where I can live with 100% losses, in hopes of hitting a 5-10x return. It’s gambling, but I like the odds if you size the trade right.

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