Mixed Markets Give Potential Buy-the-Dip Stocks a Chance
The market outlook is foggy, but there are some great trading setups this week.
NYSE Breadth: 60% downside volume
NASDAQ Breadth: 58.5% upside volume
We’ve made it through the Fed, which turned more hawkish, and we’ve made it through quad-witch expiration.
Despite investors’ assumption that this week (the 51st calendar week) comes with positive sentiment, the SPY has only finished higher 55% of the time since 2002. Conversely, the following week — the “real” Santa Claus rally — is positive 68% of the time over the last 19 years.
We’ve had a lot of down days lately, with the S&P lower in four out of five sessions last week. That said, it’s acting fairly resilient when we consider:
A new Covid variant (and the economic implications that come with it)
A more hawkish Fed (the biggest issue, in my opinion)
Decimation of growth stocks — ARKK
There are positives and silver linings to the above, but at one point we have to ask, does the S&P need to correct in order to account for these issues?
It’s still up 23% for the year and could probably use some rest. Its resilience is impressive and as for the silver linings, I could argue:
Omicron may be more transmittable, but also more mild
The Fed still remains dovish overall, just less so than before
Growth stocks may be at or near a bottom
Inflation may be at or near a peak
The Game Plan
There are some good-looking stocks and we are going to continue trying to trade the setups that work.
The key here is not to force anything.
The last thing any of us want to do is screw up badly and/or break our trading rules with just a handful of trading sessions left in the year. No one wants that bad taste in their mouth going into 2022 and the holidays.
So keep that in mind when you’re sizing up your trades:
Does this trade fit my style and is it a high-quality setup? Do I have an edge?
We have a series of “lines in the sand” when I look at the daily S&P 500 chart.
Working from the top down, resistance at 4720 remains firm.
4665 remains a pivot. If above, we want to see the S&P hold this level. If below, bulls want to see it reclaimed.
On the downside, 4600 is key support. There it also finds the 50-day moving average. If we break this level and can’t reclaim it, I think we may be looking at a test of the prior week’s low (not last week’s low) and the prior breakout area, with both near 4550.
On the upside, a move through 4665 is key. Not only has this level been critical, but it will also put the S&P back above the 10-day and 21-day moving averages.
If 4665 is resistance, the S&P remains vulnerable.
Sorry! The ARKK setup is for premium members only! Become one today with a free 7-day trial.
Individual Stocks — A handful of BTD Setups
As far as individual stocks go, there are still a few attractive setups in play.
We’re still watching P&G for a pullback and may get the 8/10-day test on Monday morning.
This is one of those scenarios where, if we buy the dip and it doesn't work out, there are no regrets.
The stock has simply been too strong to ignore and we’re not going to start ignoring it on its first reset.
Sorry! P&G is the freebie, but the rest of the individual setups are for premium members only.
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!