Red Wednesday – Howard in Turmoil

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The only people that are happy with this market are short-sellers, intra-day traders and your grandmother, who probably owns a bunch of utilities and consumer staple stocks.

Today’s selloff was pretty nasty. It brought the Nasdaq 100 deep below its 200-day moving average. V-shaped recoveries typically don’t happen below a 200-day moving average. Selloffs like these take a much longer time to heal.

On today’s show, we took a look at some important technical levels and shared some trading ideas. Howard has a list of stocks and indexes he wants to buy on weakness – TEAM, OKTA, AAPL, TQQQ, SPY. Since correlations are extremely high in corrective markets, I rather focus on trading 3x ETFs intraday. My go-to trading vehicles in this market are TQQQ and LABU (and their respective opposites: SQQQ and LABD).

Don’t forget to check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Momentum Monday – Weak Financials, So-so Tech

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Bank stocks continue to show extreme weakness and pull the S&P 500 and Russell 2000 down with them. In the meantime, tech stocks are holding better than the rest. The Nasdaq 100 managed to hold above its 200-day moving average today. Above 176, it has the potential to test 180. Below 172, QQQ is likely to go to 168.

There are some major earnings reports this week: AMZN, MSFT, AMD, GOOGL, TWTR, INTC, etc. The market reaction to them will tell us a lot about the next direction of the Nasdaq 100.

Capital never sleeps. It has to go somewhere. Lately, that somewhere has been defensive sectors like consumer staples, utilities, and telecom. Those sectors don’t really inspire a lot of confidence – their upside is limited and during market liquidations, they go down with the rest of the market. In other words, those stocks don’t offer great risk/reward setups despite their charts looking relatively better than the rest.

Don’t forget to check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Earnings Reactions Have Been Lagging This Season

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While everyone is waiting for a test of the momentum lows achieved last week, I am paying attention to how the market is reacting to strong earnings reports because there is no better indicator of current market sentiment and risk appetite.

There are few things more bearish than a poor reaction to a strong earnings report. The earnings season is still young but this is exactly what we have been seeing lately.

Netflix absolutely crushed earnings expectations. It reported numbers 30% above the estimates. In a strong market, such a report would lead to a gap to new all-time highs and an immediate follow-through. Instead, NFLX gapped up 10% and then it gave back its entire gap.

Banks are supposed to “print money” in a rising interest rate environment. Looking at their latest earnings report, they are doing exceptionally well. What’s has not been exceptional is the market reaction to their reports. Bank of America, JP Morgan, and City are all trading near multi-week lows.

The semiconductor sector is considered “the modern dr. Copper” – the ultimate indicator of the new economy’s health. Three major semiconductor companies reported earnings in the past several days: LCRX, AMSL, and TSM. All of them beat analysts’ estimates, and yet all of them are trading lower.

Testing the indexes’ lows from last week with some form of momentum divergence (fewer stocks making new lows), can lead to a bounce, but without new strong leaders breaking out to new highs this bounce is not likely to be sustained for long. New leaders often start their rise with a high-volume earnings gap.

Maybe, the midterm elections will play an important pivotal role for a potential change in sentiment.

Don’t forget to check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

Momentum Monday – Looking for Strength in a Weak Market

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While many are waiting for the main U.S. stock indexes to bounce, so they can short them, there are industries that continue to shine on the long side. Marijuana stocks have been on absolute fire lately. Most of them barely budged during the correction last week, and today we saw some impressive moves in CGC, MJ, CRON, and TLRY.

Another sector that has been going against the overall downtrend is gold. Last week we saw quite a few gold miners breaking above their 50-day moving average. Gold and gold miners have been irrelevant for years. It will be interesting if that changes. Some industries are like fashion in many aspects – they come in and out of favor in a cyclical manner.

Other areas of relative strength that we are seeing are in the retail space: WING, AZO, ULTA, JWN, etc.

Howard also talks about the recent acquisition of his biggest position – Sendgrid (SEND).

Don’t forget to check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

Markets Under Pressure

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The good news today is that the indexes finally reached oversold levels not seen in the past two years. They had a major flush that scared many people out of their stocks. The bad news is that the indexes closed near their lows, which typically means that there’s more flushing left in the next few days.

Markets like this are heaven for nimble intraday traders because of the volatility and wide ranges they bring, but soon enough they might provide some excellent entry points for swing trades we can hold for more than a day.