MARKET SUMMARY (9/16/19) – EYES OPEN

Things aren’t as clear as they may seem.

With the market rallying 6.5% since August and within spitting distance from new all-time highs, on the face of things, everything is bullish. Yet, I sold some of my longs this week, and am not as ragingly short-term bullish as I have been recently.

So here’s what we know.

We know that the market just turned positive on the weekly momentum (MACD and DMI), which would normally imply at least another 2-3 weeks of strength. We know that we have several support levels below at 2,988, 2,980, all the way down to 2,950. These levels should hold in the short-term. Sentiment also continues to be on our side, with a lot of people still trying to call some sort of top, either short-term or long-term. 

But…

We also know that the market has been rallying for a few weeks, is well off the lows, and is short-term overbought. Daily momentum, while still bullish, is hinting at rolling over soon. We also know that sentiment, while still leaning overall bearish in my opinion, is nowhere near as negative as it was in early August. Anyone buying here is definitely not buying “when there’s blood in the streets.” 

Bottom line –  the easy money has been made and I’m looking to step aside and wait for the next low-risk opportunity. 

I took profits on a portion of my longs this week and will rely on the market to tell me what to do next. The most likely case is still that we see new highs in the coming weeks. I’ll be watching for divergences on that next high (which should be only marginal given how overbought the market is) to fully exit my longs. 

After that, I’m hoping for another mini-panic at some point to swoop another round of long positions.

Keep in mind, I’m talking about my trading positions. My long-term view hasn’t changed: The market made a significant bottom in December that will carry us well into next year. That likelihood has been confirmed again and again, and increases as long as the market trades bullish, which it has.

The minor corrections we’ve seen have been contained to less than 10% and each felt like crashes given the quick jumps in bearish sentiment and headlines. These pullbacks are healthy and bullish. I’m hoping for another one after this next high. 

As I’ve been saying since March, we should be able to play this buy-the-dip game all the way into next year. As long as you don’t get too caught up in the permabear Twitter cult, we have a chance to keep making money. 

So in the near-term, a break of the recent daily uptrend might be enough for me to exit early and book all of my profits. I’ll then stand aside and watch. At some point we’ll get another dip, and can buy back again.

Keep an eye on my Twitter for any daily updates.


4 THINGS ON MY MIND

1. One of the signs of an impending reversal is violent rotation between sectors and subsectors, between former leaders and laggards. This is often a sign of distribution and a narrowing market. The collapse in momentum names this week, notably the Cloud SaaS names (WDAY, ZM, ZS, MDB, SHOP, etc.), is a warning sign.

These names were the clear leaders of the rally all year, and their ugliness and inability to rally this past week is a sign that the overall market won’t have the breadth at the next high to run away. 

2. As we get later in the year, the longer we linger at close to the highs, the more likely any market weakness will be short-lived. Fear of Missing Out could be a huge driver of year-end market action. If we get another pullback in September or October, and hold above any truly bearish levels, it might be the last correction before a FOMO-induced ripping rally into year-end.

3. Bitcoin has been a snooze-fest for months now. Thankfully I’ve been on the sidelines and saved myself from headfakes, choppiness and just overall boredom. That said, the time it spent boring us by moping around this range might actually pay off. Part of me feels like a break of the black downtrend line would be too easy, but it would be a simple enough trade that it should be worth taking a shot long.

4. Many things should factor into trading decisions.

There’s the pure analysis part – what the charts, fundamentals, sentiment, etc. are telling you. But beyond that, there’s also individual trade and portfolio risk management, which is more situation and trader-specific. 

In my case, the charts and analysis aspect still say stay long. But with strong profits from buying at the bottom, and a time-sensitive position in call options, I made a decision to take some profits early. I make that note because sometimes people read too much into a trade. Selling doesn’t always mean a trader is bearish or expects a reversal. 


A CHART THAT CAUGHT MY EYE

MU – Micron

Semiconductors have been beasts all year. More importantly, they have been a huge frustration for tech-focused hedge funds. Most fundamental-focused analysts have been scratching their heads as to why the semis keeps bouncing despite horrible fundamentals.

Hedge funds have stubbornly tried to short semis all year. They’ve had brief tastes of success, only to get whipsawed again, with the SOX index making new highs in both July and last week.

I’ve been biased long semis all year, and even put MU and LRCX in a recommended long basket only a month ago. These two names are both up +12-13% each since that call.

But for very-short-term traders, I would start looking at a quick scalp on the short-side or profit taking if you’re long. 

Strategy: We have a break of that very steep uptrend line, combined with an impending roll over of the MACD. We also have negative MACD divergence from the previous high. This is a quick scalp trade, but this stock (and semis in general) can be quick movers.

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