Quad Witch Day Is Here, Now What?
Looking at SPY, QQQ, ARKK, TSLA, QCOM, PG.
Technical Breakdown
NYSE Breadth: 49.9% upside volume
NASDAQ Breadth: 35.7% upside volume
Man oh man, these trading ranges are ridiculous (and exhausting). Obviously everyone who reads this has different approaches to the market and to trading, but I’m glad that we’ve taken a “less is more” approach to the week.
You can’t burn through your different capital stakes — the dollars in your account and your mental capital. If you find yourself short on the latter, take some time off, even just for a day.
The up-and-down nature — the chop — has made it hard to be committed to a certain direction, up or down. It can be tough on trading accounts and really tough on our mental capital. Taking a “less is more” approach to the week was an effort to play defense on these two fronts and I think it worked well.
Further, it has us taking some of our profits quickly, raising our stops to break-even and trying to keep our head above water.
The one thing I would note is that the NYSE had pretty strong breadth for most of Thursday’s session, ending near 50/50 despite the S&P finishing lower by 0.9%. The advance/decline ratio was a bit lower at 44%, but still better than I would have expected.
The Game Plan
Yesterday, I wrote:
“If [the S&P] can clear [the all-time high], bulls can start looking at upside extensions. The reality is that we don’t know how the market will handle a gap-up scenario. Does quad-witch have one last trick up its sleeve?”
Well, the ES did hit new highs during Globex before reversing hard. The S&P index didn’t quite get there, but it also failed to hold above 4720 resistance.
The plan all week has been not to do anything stupid — not to force anything that wasn’t a good setup. The bulls grabbed the wheel on Wednesday, but couldn’t maintain control on Thursday.
S&P 500
For now, the S&P 500 is holding the 10-day and 21-day moving averages, and is just a few points below the key 4670 area.
A finish above these levels would be great for the week, but with a quad-witch expiration on deck, it really is impossible to say how the markets will finish the day.
A move below 4650 (and thus, the 21-day and yesterday’s low) that’s not quickly reclaimed, opens the door down to the 4600 to 4610 area.
**Just keep in mind that the S&P can run a lot of stops on a day like this, in both directions. It wouldn’t be out of character for the market to shake out the stops around key levels and reverse in the opposite direction.
Nasdaq
Pretty discouraging action on Thursday, as the QQQ/Nasdaq has been having trouble finding traction vs. the Dow and S&P 500. That’s as growth stocks really take the brunt of the selling.
For now, the 50-day is holding up as support, but how long can the bulls lean on this measure?
It’s the third straight daily test and the fifth test of this measure in the last 10 sessions. You know what they say: The more times a level is tested, the more apt it is to fail.
If we bounce from here, let’s see if the QQQ can reclaim the 10-day and 21-day moving averages. Above $395 and the $397.50 to $398.50 zone will be on watch (the high from Wednesday and Thursday). That’s followed by $400 to $401 resistance.
On the downside, a break of the two-day low and $382.50 puts last week’s low on the table, near $379.
ARKK
Easy come, easy go.
On Wednesday, ARKK had its highest-volume day since May 2021 and gave bulls an impressive reversal off the lows. Then it gapped higher and rolled over on Thursday. This fits our “mixed tape/chop” observation of the overall market.
Clearly the $89 level is going to be important. We had a sweet bullish reversal off this low back up through $100, but bulls couldn’t maintain momentum.
On the upside, ARKK needs $97+
On the downside, we need to see it close above $89, even if that means cracking below it and running some stops first. If we break $89 and sustain below it, does it eventually open up ARKK to the 200-week moving average?
The thought of it makes it scary to think of what could happen to individual growth stocks, which have already been battered.
Individual Stocks
As far as individual stocks go, I’m not looking to get too specific. We’ve done really well this week with our picks and there’s no need to be a hero on a quad-witch Friday.
We had the Apple bearish reversal and the rotation higher in Pfizer on Monday, and the big bounce in Nvidia and a handful of growth stocks mid-week.
For today, I’d rather watch the indices, ARKK and a few others.
I want to see how they trade on the day, which ones take initiative and how we close Friday so that over the weekend I can get a look at some fresh weekly charts going into the last two weeks of the year.
I know that’s not the most exciting approach, but I believe it’s the most level-headed.
As for individual stocks though, I am watching a couple.
PG remains at the top of the list, now up 7 days in a row. On pullback watch now.
COST broke out over $561 but failed to stick the landing. So I am watching the 10-day on the downside for support. On the upside, a move back over $561 puts the high at $566.50 in play. Above that and a larger move higher can take place.
QCOM had a bearish engulfing candle yesterday. A gap down to the VWAP near $174.50 and a bull reversal could be enticing for a long trade, even just for some daily cash flow.
TSLA has a gap-fill at $910 and the prior all-time high near $900. See if that zone attracts some buyers and/or some short-covering.
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!