Opportunity Coming Soon
RLT Newsletter
When we last talked on Thursday, I said that the QQQ looked like it wanted to push one more leg higher and that I had my short-term alert set below Wednesday’s candle. The market had other ideas and gapped below Wednesday’s candle right at the open.
That was the signal that short term key supports were in trouble and unlikely to hold.
Whenever you identify a support level, believe the market wants to move higher, and then it immediately gaps below that level, it is often a great signal to flip your bias and trade, at least in the short term, in the direction of the gap.
I also mentioned on Thursday that AVGO and MU looked ready to move lower, and that alone would not be great for the broader market. Well, the gap-and-go we saw across the market certainly went. We saw a massive selloff across many of the names that have been rocketing higher over the last couple of months. I got short MU and AVGO as I think this could finally be the time that we see some real selling in the names.
This is exactly why I have been saying that tightening trailing stops and becoming more cautious in June would be wise. The market went straight up for nine weeks in a row. That simply cannot continue indefinitely.
SPY Daily Chart
Head, Shoulders, Knees and Toes
I drew out a possible head-and-shoulders pattern in Wednesday’s newsletter, and I think that remains a reasonable probability after Friday’s action. Friday was an absolutely massive selloff. It felt like a liquidation event. Everyone seemed to be running for the exits at the same time, and many high-beta momentum names fell double digits in a single session.
I do think this selloff creates opportunity, but I don’t think we are there yet, as the broad market still remains above key support levels.
SPY has pulled back into its anchored VWAP from the April 23 pivot and is sitting right on a good sized volume shelf. The $731 support level has not yet broken. As long as we remain above that level, there is still technically a path to another higher high, although Friday’s candle significantly reduced those odds.
The most common follow-through after a candle like Friday’s is a gap higher followed by a retest into Friday’s range, but without breaking above it. In other words, I would not be surprised to see a bounce back toward $744 to $748 before sellers step back in and push the market lower.
If that happens, I would expect the next major support zone to be between $710 and $695. SPY needs to hold above the 200-day SMA. If it does not, we are likely in for a much more volatile summer than many market participates can imagine.
My expectation remains that the prior all-time high near $697 and the 100-day SMA should provide meaningful support on any deeper pullback and that that pullback would be a great opportunity for longs into the fall.
Double Tops
Right now, we have potential double tops forming in NVDA, GOOGL, TSLA, AMZN, and AAPL, although AAPL is still holding above its neckline. AVGO, META, and MSFT are also showing varying degrees of bearish patterns and weakening price structures. That list of big names with possible bearish set ups is at least a reason to be a bit more risk adverse in the markets for right now.
AMZN Daily Chart
I have raised a significant amount of cash and am currently holding the largest cash position I have had since March when the market broke below the 200-day SMA. If we do get a larger correction now, I will deploy much of the cash and look for a bullish end of the year.
My primary focus right now is capital preservation during what could become an extended period of volatility.
I will be looking for opportunities this week, but I really want to see what Monday’s candle gives us and how the market reacts at the open before becoming too aggressive in either direction.
As always, I will keep everyone updated in the Monday Afternoon Trading Room and through in our Monday Newsletter.
Prosperity Portfolio Update
In other news, my Prosperity Portfolio trading plan, which I have been using to trade the QQQ since January 2023, trailed out of half of its position on Friday after entering on April 9th.
This is a strict rules-based trading system designed to provide clear entries, exits, and risk management. It has delivered strong results every year while doing an excellent job of limiting downside exposure.
Even if the remaining half of the position gets stopped out immediately, the system will now be up 106% over the last three years while taking only 18 trades.
That is an incredible return on capital, but more importantly, it is an incredible return on time. Most traders dramatically underestimate the value of having a system that allows them to participate in major trends without staring at charts all day.
I provide this trading plan to every student who enrolls in my Swing Trade Mastery course. The next class begins on August 5. For more information, email yates@reallifetrading.com.
QQQ Daily Chart & Prosperity Portfolio Trade
