Bearish Headlines Loom
RLT Newsletter
QQQ Nears the 100-Day
The weakness continued as tech sold off and QQQ neared its 100-day SMA. At this point it looks like QQQ will touch the key moving average, and if SPY is going to drop into its preferred bottoming zone, QQQ will likely punch through the 100-day SMA. A lot of this is going to depend on big tech earnings, so once again the market hangs in the balance on the week AAPL, AMZN, MSFT, and META report.
Honestly, QQQ isn’t nearly as top-heavy as it was a few years ago. Only AAPL and NVDA carry an 8% weighting, and the rest of the names sit under 5%. That said, after GOOGL earnings I’m not expecting fireworks from any of these companies, especially with tough comps ahead and ballooning capital expenditures that the market is punishing right now. So even without those old 10%+ weightings, these earnings will still be pivotal to sentiment and to the AI trade that’s propelled us higher since March.
QQQ Daily Chart
Many of stocks, QQQ included, are dropping into buy zones I’ve been watching for a while now. And as they get there, we’ve got a stack of bearish headlines to contend with:
The war with Iran escalating
Oil rising again
The DXY threatening to break out
Bonds cratering
An earnings season that’s started off rocky
A Fed meeting Wednesday where there’s now a 38% chance of a rate hike
There’s certainly a setup here that could drive prices meaningfully lower and pretty quickly, but that’s always the case when stocks are dropping. I firmly believe in the old adage: Don’t fight the Fed.
A surprise rate hike would be the most calamitous event on that list and would shake things up in a big way.
How to Trade Through the Uncertainty
There are no risk-free trades, but there are risk managed trades. Everything may seem scary now but once all the news turns bullish again, the market will be alerady ripping higher, so there are really only two things to do.
The first is to outline your risk on each trade and make sure you’re exiting or hedging below a key level. A trade can be built around key levels, and as long as risk is mitigated to the downside, the news, the fear, and the headlines don’t matter one bit. If you’re trying to buy low when there’s fear in the market, which is a perfectly reasonable style of trading, there will always be fear that news or macro sends stocks much lower. As traders, our risk management protects against that and lets us buy without worrying about blowing up our accounts.
The second way to trade around these binary events and heavy uncertainty is to simply not. Wait until price has regained key moving averages like the 20 or 50 before looking for bullish setups again. There’s always something working in a bull trend. AAPL is still pushing higher, and so are the banks right now. A momentum trader who only trades the bull trend would simply focus time and effort on the strong names and wait for more strength to show up in the rest of the market.
AAPL Daily Chart
My Approach
I personally do both. I like to buy low, especially on rock-solid assets like QQQ and SPY. I think the opportunity to buy into the green box on QQQ is a great one. Everyone says they want to buy low when price rockets higher, but when price actually turns, those same people run for the hills and assume it’ll never go higher again. Instead, why not use proper risk mitigation and buy into weakness on strong assets?
For an in-depth look at how I do this, I have two spots left in my 10-week Swing Trade Master Class starting August 5th at 8:00 ET. Check out the link below for more details and come join us.
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