Trading Friday's Gap-Down After Thursday's Collapse
How will the market maneuver this one?
Technical Edge
NYSE Breadth: 76.5% Downside Volume
NASDAQ Breadth: 65.7% Downside Volume
What a rough session Thursday turned out to be. There were some solid opportunities in AAPL, AMD and TSLA in the morning, but the S&P trade was difficult.
I had a hard time being bullish yesterday because of the gap-up action. That said, it was easier to sell the rally on Tuesday vs. Wednesday. I don’t know why, but that’s what my gut told me:
“I felt more confident about fading yesterday’s [Wednesday’s] open than I do today.”
That said, the S&P definitely went higher than I thought it would yesterday and the breadth was running quite strong — about 85% upside — before the afternoon spill. But did anyone notice that ARKK closed green?
That was an interesting development to me. Maybe it’s just a one-off event, but it’s something to keep note of. That said, it’s not great to see that sentiment is still so complacent.
It’s really something to consider when many of the long-time pros out there tell you this is one of the more difficult markets they have traded. If you haven’t gotten your ass handed to you, consider it a win. If you’re flat or up through this mess, give yourself two pats on the back. It hasn’t been easy.
Game Plan
Today’s Game Plan is simple: Don’t be a hero!
If a solid setup presents itself, then by all means pull the trigger. But there’s nothing wrong with reducing your position size in this type of mess or completely sitting it out.
Buying dips, selling rips — all of it is going to be hard if you don’t have the discipline to get out quick when you’re wrong. If you can’t do that (and there’s no shame in it) then know your weaknesses and protect your capital. It’s as simple as that.
S&P
I have been pretty steadfast in arguing that the longer term trend has been higher, but that caution flags have been piling up.
Even though we weren’t getting outright short the S&P two weeks ago, I consider it fortunate to know we’ve been sidestepping a ton of land minds and catching some decent moves in the short term.
Gapping lower so far this morning, the SPY is below yesterday’s low. The ES, not quite.
If we get an open below $444.50 and a reclaim of this mark, it could set us up for a possible bounce (on expiration Friday).
With the S&P so close to the 200-day, it’s hard not to think this moving average could act as a magnet. That’s a little over 1% from yesterday’s close.
A higher open is likely the worst-case scenario for bulls.
Nasdaq is in Correction Territory
Yesterday afternoon I was looking at the QQQ before it got body-slammed. After losing the 200-day, that leaves the 50-week and weekly VWAP measure in play near $358-and-change, as well as the gap-fill near $360.70.
The $358.50 area could act as a bounce level or at least give bulls a chance to play a rebound. So far, that’s where the QQQ is trading now in the pre-market.
I don’t want to come out here and say, “Buy the Q’s at q$358-half!” and then watch it roll over to $350 and see a bunch of people get hurt. Instead what I’m saying is, use these levels as a way to navigate and have a rough idea of where the key support and resistance areas may be.
Yesterday we were bearish on the QQQ & NQ if it couldn’t hold last week’s low (which it didn’t). Now we’re looking at potential bounce zones. If they fail, so be it, and we’ll look for lower levels.
Individual Stocks
Again, today’s game plan is simple: Don’t be a hero. Let’s look at some individual names going into the last trading day this week:
Go-To Watchlist
Energy (PXD, DVN, SLB, COP, CNQ and XOM)
TD
MET (needs to hold last week’s low though at $66.67)
ABBV (watching weekly more than daily, looking for ~$129/10-week ema)
QCOM — nice weekly chart but needs $168+
CAT
DE
BRK.B
KO, PEP, MDLZ
PG
CAT
Down hard the past two days, CAT is a recent relative strength stock. It’s dipping to the Q4 high, as well as the rising 21-day and 50-week moving averages.
NO buying and hoping. If it can’t hold, leave it alone. An open at or near the 21-day and move back through $216.50 would be most attractive.
DE
Same thing as CAT. Recent relative strength trade, back into the breakout level and rising 21-day.
If $364 can’t hold, $358 may be on the table.
ROKU
This one is definitely #NoHero
Growth stocks have been under assault and Roku is not an exception. After 3 doji sticks in a row — which is rare — it looked like ROKU was going to bounce. It did, but then it was rejected by the 10-day.
Gapping lower now, shares are trading below last week’s low of $159.76 in the pre-market.
I would love an open below this level and a quick reclaim of it. The hope would be something like a low of $159.26 and a reclaim of last week’s low.
That would let me get long with a stop-loss of 50 cents a share and look for some sort of bounce.
This is not a risk-free trade. Far from it. If you are not comfortable with it, do not take it. And if the risk range becomes too wide, it ruins the R/R setup and that’s fine — we walk away.
Energy
May get our first test of the 10-day in quite some time. If that’s the case, then look at the XLE (above), as well as some of our oil names from the Go-To list.
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!