Trimming Into the Gap Up | Then Looking for Opportunities (AMD, ARKK, AAPL, etc.)
With a big gap-up opening on the way, we're looking to buy the eventual dip.
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The strong breadth days continue in both directions. We have seen a constant barrage of 80%-plus upside and downside days, mostly favoring the latter over the last week or two.
Yesterday’s near-80% upside move made it tough to fight the upside trend, even as the S&P 500 wobbled a bit early on.
I thought a lot of the recent selling was more capitulation, tax-loss harvesting and reducing size more than anything. I didn’t think it was outright short-sellers. But that very well could be the case.
Technical Breakdown
NYSE Breadth: 79.8% upside volume
NASDAQ Breadth: 66.4% upside volume
Yesterday, I asked “Can they reverse?” referring to ARKK and other high-growth holdings.
It did not give us the traditional bullish reversal, but ARKK did a great job of breaking Friday’s low and then reclaiming it. That came with a trade too and I’m glad we had it in Monday’s game plan.
There were clues yesterday if you knew where to look, particularly with ARKK. It broke Friday’s low, quickly reclaimed it in the opening 15 minutes and held that level as support.
While the SPY was weaker late in the day, ARKK went out near its session high. That didn’t guarantee this morning’s pop, but it sure gave a confidence boost to those who are still long.
As for the indices, let’s look at where they will open.
S&P 500
Starting with the S&P 500 futures, notice how we’re rallying about 60 handles now to the 4650 area.
On Monday, the ES pushed above the 10-day moving average and yesterday’s high, but the late-day fade caused it to close below both marks. That technically left the S&P vulnerable, although the overnight action has clearly changed the situation.
Regardless, we are getting a gap-up into the 21-day moving average and an area “full of failure” as support flipped to resistance in the 4550 to 4570 zone. Last week’s high sits up at the top of that range.
The ES could gap into, then push through these marks. However, the more likely play would be a gap-and-fade. The question from there is, where does support come into play?
It’s still early in the week, but if we can finish it on a weekly-up note over 4670, it’s hard not to like a retest of the highs.
The SPY is in a similar situation and you can see the pre-market pricing on the chart above. Set to gap into last week’s resistance and the 21-day moving average, I think we need to be a bit cautious in the opening minutes of trading.
The one thing to watch will again be growth stocks. Can this group keep a bid underneath their stocks?
Yes, 2% to 5% rallies feel good, but many names are down 50% or more. They will need more than a few meager rallies to really turn around. But if they do, it could propel the markets higher.
Individual Stocks
You have to be quite happy with how some of these trades have played out. Not everything has triggered over the past 10 days or so, but that’s likely to be the case anyway. What has triggered just in the last day or two has done well:
DLTR went 2x daily up and gave us a push into our profit zone.
ARKK gave us a strong reversal yesterday.
Home Depot hit new all-time highs as XHB continues to trade well.
As far as individual stock setups go, the market’s gap-up really makes things difficult because so many names are also gapping up and to get them, one has to chase. I don’t like to chase.
As a result, I’m looking to