I often say that one gap and one candle can change an entire chart. We may have just seen one of those moments on Thursday.
The sentiment at the end of the day on Wednesday was quite bearish. QQQ had just printed a bearish engulfing candle, SPY had finally broken one of its key support levels, and it looked like sellers were firmly in control. Then Thursday morning arrived, the bulls stepped in, and QQQ gapped back above the 100-day SMA and tech stocks rallied throughout the day. It was a strong gap-and-go after a wave of heavy selling, and so far it is playing out very similarly to the March bottom.
In March, QQQ fell a little over 6% in about a week, finishing with four large down days in a row before printing a gap-and-go reversal that carried it back to the Anchored VWAP from the prior major low. This week, we just saw that exact same sequence unfold again. The only difference is that this bounce is coming right off the 100-day SMA and directly inside my QQQ buy zone.
QQQ Daily Chart
While it looks like the low should be in, I can’t say with certainty that it is. I can still see a scenario where QQQ pushes higher, fills the gap around $702, and then rolls over for one final flush into the 200-day SMA. That said, QQQ dropped firmly into my green buy zone, so I’m long. TQQQ also tagged its 200-day SMA, while both SMH and SOXX pulled back into their 100-day SMAs. Those were all solid buy zones that I took advantage of and have been pointing out for weeks.
When markets get volatile, it’s easy to tell yourself you’ll buy after one more dip. The problem is that “one more dip” often turns into waiting indefinitely because fear takes over. That is why having a plan is so important. Having a defined buy zone and knowing exactly where you’ll risk manage the trade allows you to remove emotion from the decision-making process.
If we do rally and fill the gap overhead on QQQ, I’ll look to lock in a collar on my positions, creating an essentially risk-free trade in case we roll over and make another low sometime in August. Either way, I’ve been saying since my June 16 newsletter, Final Flush, that this was the buyable decline before the next meaningful rally. Whether that rally ultimately carries us to new all-time highs or just a lower high doesn’t matter nearly as much if your entries are in the right place. Good entries create profitable trades.
Semiconductors are continuing their recovery following strong big tech earnings. MU bounced almost perfectly from its gap-fill level after nearly touching the 100-day SMA. It actually missed my limit order at the 100-day SMA by just a little, which is frustrating because it has already rallied more than 26% from that area in just over a day.
MU Daily Chart
Things move fast in tech, espeically high-beta tech. After sharp selloffs, the bounces are often just as aggressive. MU gave everyone a chance to buy near the Anchored VWAP or the gap fill, and I highlighted that exact setup in this newsletter. The same was true for AAOI, which also played out almost exactly as expected.
If you’re not already in MU or the tech names that are bouncing from those lower levels, I would wait for a pullback instead of chasing it here. However, as I’ve said many times, a failed bearish pattern, such as a failed head-and-shoulders, often leads to a powerful move in the opposite direction. That’s exactly what we’re seeing now.
I bought aggressively on Tuesday and Wednesday, and I’m looking to add even more on the next quality pullback
Swing & Position Trading Mastery
I have one spot left in my Swing & Position Trade Mastery class, which begins August 5th.
In this 10-week course, I teach the complete swing and position trading systems I use every day, including technical analysis, Elliott Wave Theory, risk management, my Prosperity Portfolio trading plan, and much more. My goal is not just to teach setups, but to help you build a repeatable process and trading plan you can confidently follow for years to come.
Rather than hearing it from me, here’s what Amy A. had to say after taking the course:
“Regardless of whether you are fairly new to trading or have been trading for many years, I can’t say enough about Yates’ Position and Swing Trading Mastery course. I have been trading, albeit casually, for over 30 years and still learned a ton from Yates. We had a mix of experienced and newer traders in our group, and he did a wonderful job of putting together a course that was valuable to both groups. He also put in the extra time necessary to make sure the newer traders were not left behind. Yates’ dedication and attention to the participants far exceeded my expectations. I highly recommend the course.”
If you’ve been thinking about taking your trading to the next level, this is your chance. Once this final spot is filled, enrollment will be closed until next springs class.
