Straight Up
RLT Newsletter 5.6.26
Wednesday gave us another absolute blowout session, with QQQ closing up 2.08%. It’s now up roughly 25% from the March 30th lows, has pushed through the 1.618 extension from the recent drop, and still hasn’t touched the 10-EMA once during this entire run.
SPY Daily Chart
At this point, the price action is looking more and more like the October 1999 analog I’ve been tracking since April 8th, especially on the QQQ side. Back then, QQQ essentially went vertical, rallying for 78 straight days before it ever closed below the 20-EMA. We are only 48 days into this rally and just closed 6% above the 20-EMA. Institutions are once again buying every dip because they can’t afford to underexposed, and that creates a self-fulfilling bid under the market. If we continue to track that analog, the next pullback into the 10-EMA should be buyable. As long as key levels hold and AI names continue to deliver, this rally can persist. The two key levels I am watching on QQQ are Wednesday’s low at $686 which is also the 1.681 extension and a huge target for me, and the $653 pivot. Below either one and it will be a warning that we may finally stop going straight up.
QQQ Daily Chart
This move has evolved in phases, and understanding the sequence matters:
It started with the typical short squeeze off the lows. Then it transitioned into institutional money that was underexposed being forced to chase. From there, AI hardware names came in with strong earnings, which pushed funds to chase even harder. Now we’re in a feedback loop where big capital keeps bidding prices higher as earnings continue to reinforce the idea that there’s still upside to be had in AI tech names right now. Each phase feeds the next. That’s why this thing has been so relentless.
The magnitude of some of these moves is hard to comprehend. GOOGL, the 2nd largest company in the world, is up roughly 50% in a month. The amount of capital required to move a name of that size is incredible. MU is up around 115% off its lows, which is just nuts, and it still may not be done as the 2.618 target is at $728.
MU Daily Chart
In this kind of environment, trailing stops have been the key to staying in positions without getting shaken out too early. That said, with so many names this extended, I am getting pretty tight with my stops and have taken a good amount of profits off of the table.
The SOXX long I called out on April 26th played out well, as did the NVDA long earlier this week. I also am in the SOXX short which I laid out in detail, which, to be fair, was my first countertrend swing since the April 8th gap. As it looks now, that trade will end in a stop out as earnings continue to drive this thing higher.
That’s the reality of fighting trend. Even with a solid thesis, countertrend trades are just tougher, especially in a trend like this. One key takeaway is that countertrend trades are easier once a key level is broken. Shorting something because it looks “too extended” is not a strategy or a good idea for that matter. While that wasn’t exactly my approach, it’s still a reminder of how strong this AI market is. If I do get stopped out, I’ll look for one more short opportunity, ideally on a break of a key level with confirmation. Right now, Wednesday’s low is the main level I’m watching on SOXX for that kind of short. If I am lucky we will break down from here, I can add to the trade and it will have worked out just as well as my SLV short earlier in this year.
SOXX Daily Chart
The main issue right now is that most of the names I’ve been trading are extremely extended from their 10-EMAs, which makes new entries hard to justify. A lot of the bullish theses have already played out in the near term.
We’re in that uncomfortable phase where the market is ripping higher, but I don’t want to chase at these levels, and I also don’t want to be aggressively short outside of very short-term, tactical trades. I’ll take those on clear breakdowns, but anything beyond that doesn’t make much sense here.
When I get into this kind of environment, it becomes less about finding new trades and more about managing what I already have. That means tightening stops, protecting gains, and letting winners work.
At the same time, I’m building out a watchlist and doing the work now, studying charts, refining levels, and defining entry criteria, so that when we do get the next pullback or setup, I’m ready to act without hesitation.
This stage of the market feels like the time when bears finally capitulate and get long and bulls who have been riding the move start to size up aggressively and get cocky. That’s often when you get a pullback. It doesn’t have to happen here, but the market is starting to feel a bit frothy.
For now, I’m not interested in taking swing trade shorts, and I’m not chasing extended longs either.
The plan is simple: trail stops tighter, raise cash, and stay patient.
Before placing any trade this week, ask yourself one question: is this a reaction to what the market just did, or is it a setup I already had planned? If it’s the former, it’s probably best to sit on your hands. Step away for a bit. Go outside, get a workout in, spend time with your kids, and enjoy this beautiful life. The best trades this year have come from preparation, planning then executing, not reaction. That doesn’t change just because the market is moving fast.
Thanks for the update Yates! Thanks for putting things into perspective, it’s so hard not to get fomo in this market.