MARKET SUMMARY (1/6/20) – WAITING FOR A MOVE

Never force trades.

Sometimes there are trades or investments you really want to make, but the set-up isn’t quite there. It’s human nature to rationalize away the risks and convince yourself that a trade is worth doing. I catch myself doing this all the time.

I mention this because we’re at one of those market junctures where there isn’t an obvious trade.

Last week started off with a mini-pullback into 2019 year-end, just enough to break a multi-week uptrend and turn the momentum technicals lower. A furious January 2 rally looked to reverse that, but Friday’s sell-off in turn whipped everything back to bearish.

All this back and forth action is tough to trade, so I’ve been comfortably watching on the sidelines. 

Overall, it’s hard for me to get bullish before we have some sort of pullback. As we sit here at the beginning of the new year, there’s really no rush to put any trades on unless they have nice clear set-ups. The ideal spot would be getting a little mini-panic below SPX 3,200 where I could go long. 

Until then, I’ll wait.

Bigger picture, let’s start 2020 off with the same mindset that guided us well last year – the bull market is still strong and we should be focused on buying dips. 

At some point things will turn and we’ll enter a clear bearish cycle. I expect to be on the right side of that as well, and hopefully profit even more. But I still think we are far off from that, both in terms of time and price. No reason to be early on that. There just really aren’t any signals that the market is ready to turn long-term bearish, other than the usual doom and gloom permabear predictions that are always all over the Internet.


3 THINGS ON MY MIND

1. After Friday’s Iran/World War 3 driven triggered sell-off, it’s a good time to remind you of my general playbook when there’s some sort of geopolitical headline.

I ignore it.

In my mind, the technicals were already weak, so any news could have triggered the continuation of the pullback that started December 27.

2. Sentiment on semiconductor stocks reached a fevered pitch this week. Maybe it was the semis stocks ripping on the first day of the month. Maybe it was everyone reading the typical year-end market summary reports and seeing SOX led the market and was up +60% this year.

Fear of Missing Out is at panic levels on these names. If you’re going to try to trade growth stocks, you have to have complete mastery of your FOMO. I’d much rather be buying semis after one of their -50% sell-offs than after their +50% rallies.

I’m short some of these names, including QRVO which I highlighted last week. There’s probably still some upside so I’ll be actively trading in and out. Near-term though, I’ve rarely seen this much panic FOMO in a specific group – which is normally not the best time to buy.

3. Bitcoin is acting well overall. There have been a few tests of this bottom level over the past few weeks. We still haven’t broken out, but the continued visits to the lows with positive MACD divergence is a positive.

I’ve held my longs because of this technical set-up. The all-clear bull signal will still have to wait until it can break out of this range. With the MACD in a classic bullish configuration, odds say it will.


A CHART THAT CAUGHT MY EYE

ACB – Aurora Cannabis

When trading, you have to be able to think clearly and have some amnesia to eliminate biases.

I’ve been trying to take shots buying the cannabis names for awhile. Ironically, as bullish as I am, I’m not particularly long-term bullish any of the current stocks that are viewed as the current leaders. There’s too much that can happen as the industry matures to count on the status quo. Think about where 1997’s Internet market leaders Yahoo! and AOL are today.

That said, the names that move the sector today are what we have to work with.

I’ve taken another stab at ACB here with this decent chart set-up. Strong positive MACD divergence and a fairly steady, lazy bottom.

This stock can move. See that green circle around the purple 50-day moving average and the $2.70 area where a recent high was? It’s a reasonable target for a bounce and would barely be a blip on the chart.

But it would also be a +35% move. You can see many 25-50% week-long rallies throughout this chart.

Buy low, sell high (pun intended).

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