Raising Cash
RLT Newsletter
The QQQ showed additional weakness on Tuesday while SPY held up relatively well. QQQ is now back down to the lower trendline of the pennant pattern we’ve been tracking for more than a month, while SPY continues to trade near its upper trendline.
The bifurcation in the market continues, with semiconductors being the primary source of weakness within technology. When a sector rallies as aggressively as semiconductors did over such a short period of time, there is always an eventual payoff, either through a correction in price or a correction through time.
I’ve been cautious on semiconductors ever since MU reported excellent earnings, gapped to new all-time highs, and then immediately sold off, trapping the late buyers. That type of exhaustion gap often marks at least a temporary top, and we’re now seeing weakness spread throughout much of the sector.
SPY Daily Chart
Prosperity Portfolio Exits QQQ
QQQ closed below its 50-day SMA for the first time since the March lows, triggering an exit in the Prosperity Portfolio and leaving me with a large cash position.
The Prosperity Portfolio is my systematic QQQ trading strategy, and this trade closed with a 16.8% gain over the past 60 trading days while managing downside risk unlike a a traditional buy-and-hold approach.
This is one of the trading systems I share in my Swing Trading Mastery course, which begins on August 5th. Having a predefined, systematic plan removes emotion from the decision-making process and lets the market, not your feelings, determine when it’s time to get in and when it’s time to get out.
I love having this strategy for my long-term QQQ allocation because it allows me to stay invested during strong uptrends while providing a disciplined process for reducing risk when conditions begin to deteriorate.
QQQ Daily Chart
Summer Chop Continues
The summer chop is definitely here. Just because the Prosperity Portfolio exited QQQ doesn’t necessarily mean the market is about to plummet. It simply tells me that volatility is increasing and that risk management deserves a greater emphasis until something changes.
The next key level I’m watching is $702 on QQQ. If that support breaks, I believe the probability increases significantly that we retest the open gap near $682.
Raising Cash
Since I’m leaving for Aerial BVI this week, it actually feels great carrying a larger cash position. In addition to exiting QQQ in the Prosperity Portfolio, I also closed out all of my shorter-term swing trades for solid gains before leaving.
The one swing position I decided to keep open is XOM.
After patiently adding shares of XOM while it consolidated in a tight base around its 200-day SMA, I wanted to give this trade time to play out. I’ve been posting daily updates in the RLT Swing Trade Channel, and we finally saw the gap I was waiting for.
Once crude oil filled its gap near $67 and found support, I felt a relief rally was likely. That created an outstanding risk-to-reward setup in XOM, with the overhead gap serving as the primary target and a close below the 200-day SMA acting as my stop.
I think there’s a good chance XOM fills that overhead gap over the coming days, which would make this a very profitable trade.
If you haven’t already, take some time to study that chart. It’s one of the cleanest examples you’ll find of a moving average support trade combined with a gap-fill setup, exactly the type of technical pattern I look for when building swing positions.
XOM Daily Chart
