Since this is an index, it is going to be taking a lot of stocks with it if this does happen so if you start to see this playing out, it would be a good idea to start looking at tech and healthcare stocks for good bullish entry points. I say tech and healthcare because that is the majority of the NASDAQ 100, and that will juice the stocks in those sectors. I'm not ruling out a break down here for lower prices, but I will say that I don't know which stocks they would take down with them in this cycle of selling.. so with that said it would just have to be a "wait and see" to find out where the new down trends are emerging and hop on it. My best guess would say they would take down the SPY and DIA but I would have to start seeing break downs hold and continue before I run SPY & DIA short side trading through my process and execute on it.
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XLB - Still holding above 50 and above last weeks low is bullish, below it is a violation.
XLE - $95 was successfully defended for May expiry. Any selling in here would still just be a pull back in the larger up trend. $95 still break out level
XLF - Swing point at $22.2 is still being defended by sellers and the $21.60 break down area is still being defended by buyers.. would need to break one of those levels to see resolution.
XLI - Trading similarly to XLB (both neutral to bullish bias). Support below at YTD breakeven/50 day avg and holding last weeks low should also provide some support.
XLK - One of the better looking sectors with a clear breakout level being new highs and every higher swing low another step closer to breaking out. Will be watching this in tandem with the NASDAQ if we are moving to the upside.
XLP - Still in a strong up trend with immediate support at $44 then $43.5 after that.. No reason to think this will break down but if it does there is a ton of support about 3% lower.
XLU - Successfully testing 50 day avg so far and also round number support at 42 complimenting the 50 day. Watch where the next high takes place, if still strong it should make a higher one.
XLV - Still watching this same break out level but if it can get through I think it would make a great trade. This also falls in line with watching the NASDAQ and the XLK.
XLY - Still in major chop mode here. Break down would have to be getting through the low made at $62 and a break out would be getting through $65. Not so excited about this entire sector moving but I like a few names in discretionary.
What I constantly am looking for in the market is a big picture move that I can build a portfolio around that would last anywhere from a week to a few weeks and take the entire portfolio with it. That is why the energy trade was so good to me because every single position I had moved in favor, it wasn't just going long the XLE with 1% of capital at risk. I feel like the NASDAQ and Russell are really where the action is right now and looking at the next 5% move I think it would be higher based on the price data we have right now. Even if we are ultimately building a top, we can have these rallies that test the highs or make new highs and get sold again. If that is the case that we are looking for a 5% move higher and the NASDAQ and Russell is where the action is then I want to look at the stronger index with a clean break out level which is the QQQ.
Since the QQQ is made up of mostly healthcare and tech then it would also be wise to look at how those sector ETFs are looking and it just so happens that XLV has been looking good for a breakout for a few weeks now and XLK has been holding up very well in a tight consolidation. Then take it one step further and find some stocks that are looking good for upside in these sectors (the stocks that will potentially or continue to drive this move); AAPL, ADBE (with a bit more work), ADSK, HPQ (earnings coming up), MU, SNDK, ESRX, CELG (with more work), GILD, MDT, UNH. Sometimes it takes a week or so to get entries in a lot of names and sometimes a lot of them trigger in one day but this is what I do.. it is all a big puzzle to me in the big picture and with the technical skills that I have I can do my best to piece that puzzle together while managing the risk I am putting out there.
This is just an example of what goes through my head.. it isn't all predicated on a 5% move higher this is just an example of what I think is possible. We could start selling off hard on Monday and break all support levels and I would be using the same logic I just explained here except with weak indices, weak sectors, and weak stocks.. look at where price has the potential to go on the daily and find the emerging trends on the 130 & 65 minute charts, look to trigger short side entries, manage the risk, and repeat.
As always thanks for reading..
Trade well,
-Michael
