Buying the Dips and Ignoring the Fear
The charts tell me to be cautious but there is no reason to panic sell here.
It is really easy to get caught up in the headlines, especially when two big names like TSLA and BA shares are selling off while getting the wrong kind of attention.
Are you feeling the pressure to sell?
I know I am feeling the pressure and whenever that happens, I turn right back to the charts.
And I have to say, the charts I am looking at are still holding up.
Take a look at the daily candles for SPY, which you might think have rolled over into a downtrend if you only listened to the news.
Yes, we had a negative week. But how negative?
This isn’t the first test of the trendline, which also is exactly where the 20-day simple moving average (SMA) can be found for additional support.
The candle has a bit of a lower wick, showing the bounce and potential for next week to give us a move higher off of these levels.
I am looking for $508 to hold up as support, providing the springboard higher.
If we do get a drop, the 50-day SMA is showing up conveniently near the bottom of the recent gap that formed.
It would be a nice way to shake out the weak hands while also maintaining the uptrend. A drop to fill the gap would only be about a 2.7% drop from Friday’s close.
We could get that this week with FOMC on Wednesday. I am not saying we will but it is worth noting that this isn’t a very big drop.
The industry I am still most interested in is semiconductors.
The chart for SMH shows some slowing down but again, still above support and in a clear uptrend.
The gap below for SMH presents the opportunity for a much steeper sell off, roughly 9% lower than Friday’s close.
You could argue that after the recent historic run, this space is ready for some decline.
The counter argument is some of the names are actually undervalued even after the run up in prices because of the increased demand for chips.
I’ll keep trading the chart in front of me which has not yet broken down and looks to me like it is ready for a period of consolidation before continuing higher.
I am looking for $213 to hold up but if shares of SMH drop below, we could see the gap fill which I would consider an excellent buying opportunity for the long term.
When we start to see the 50-day SMAs being tested I will ease off of my bullish stance a little more. For now, I am taking a slightly more cautious approach but am still trading for upside.
This means my position sizing is a little smaller and I am faster to take profits off of the table.
It is a stock picker’s market with some names performing really well.
I will be sending out the trade ideas I am consider this week and there is no doubt that DKNG will be in the mix.
While I am an avid basketball fan, the chart is why I am interested in trading DraftKings again.
I hope you have a great day!
-Nate
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