The Shakedown 3-1-21

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LAST WEEK, S&P 500 (-2.48%)

Monday: -0.77%

Tuesday: +0.12%

Wednesday: +1.10%

Thursday: -2.41%

Friday: -0.52%

We are seeing the market change its dynamics week over week. We had some great warning signs to start cashing out the past few weeks, and this week we got confirmation of that being the correct move in this week's market weakness. There are times when the market is easy, when we need to ramp up the risk and try to crush every day. This has been the the sentiment the past year. There are other times when the market is choppy and difficult, when trades that have been working previously begin failing, where sitting out becomes the much better move for the long term. This is our current, changing environment. 


Early in my career, I felt the need to be the "perfect trader" who could kill any environment, where I'd look to put on equal amounts of risk every day, no matter what conditions looked like. In the beginning of the Trading Expert's Alpha Chat, I would feel an obligation to have a million setups ready to go, no matter the environment, but have learned over the years it's better for everyone's account if we watch the difficult action from the sidelines. I took one trade last week, AAPL long at the 50 day, was out of the trade in about 20 minutes with a loss, and I'm completely fine with the outcome as I didn't get hurt in a week that saw the S&P lose 2.5% and the Nasdaq fall over 5%. 


We saw the broad market put in a nice reversal Tuesday-Wednesday, only to have us give back the gains Thursday-Friday. The market was shaping up with a nice reversal Friday that initially had me thinking it would be time to buy heading into this week - then in the last 15 minutes of trading the S&P violently moved lower which shows us the environment is still quite tricky. The environment of the last year, which was a vicious bull market, will have everyone thinking they're a professional trader. We're seeing over the last month how quickly sentiment changes when the action gets more difficult. 


Scanning charts this week has led me to the conclusion we should be prepared for another volatile and tricky week. We saw pockets of strength in reopening sectors, energy/industrials/financials have been the place to be. Those names were relatively weak Friday with some strength heading back to the nasdaq names, so it's anyone's best guess where the relative strength will lie this week.  I will be prepared with setups regardless of where the strength lies, but as we saw this week, sitting out, watching & preserving that mental capital likely got you a lot further than trying to be the most active trader. There are pockets of strength, some names are still moving well, but I will continue to proceed with caution. 


When wondering whether or not you should push it, just scan some charts. It was only a month ago creating this newsletter would be giving me anxiety because there were so many easy setups that were working out to the upside. Now I scan charts and it almost feels like forcing setups because the action has been so bad the past few weeks. Patience pays, save that money for the easy times. We'll be ready when that time comes. 


News-wise, the House of Reps passed a $1.9 Trillion Stimulus Package over the weekend. They're rushing to get this deal done before the March 14th deadline when jobless benefits are set to expire. From here it heads to the Senate which has a 50-50 split so we'll hear them negotiating back and forth all week to get this bill passed. These stimulus bills have helped the "reopening stocks" the most as it gives people more disposable cash to spend on consumer cyclical stocks like Home Depot, Walmart, Lowe's and other retailers. A stat came out over the weekend that Friday had the highest US gasoline demand since October 30th and the 3rd highest single day demand since the pandemic started a year ago. This info tells us people are leaving the house again and gives a lot more context to the reopening names having all the strength the past few weeks.


All in all, I plan on managing risk this week as if we're in the early stages of a broad market sell off until the market proves otherwise. 

Earnings This Week

Click the above picture for a full list of the companies reporting this week

BIG Week of earnings for many names we often trade. NIO ZM WKHS NVAX INO FUBO TGT OKTA COST PRPL NNOX SE            to name a few




Draftkings had earnings Friday morning and the stock nudged higher on a broadly weak day. It's no secret I'm a big fan of the gambling sector going forward. Draftkings earnings were solid, but their forward guidance was the real impressive part of this report. From CEO Jason Robins, 

"With a favorable fourth quarter sports calendar and strong marketing execution, DraftKings was able to generate tremendous customer acquisition and engagement that propelled us to $322 million in fourth quarter revenue, a 98% year over year increase. In the fourth quarter of 2020, we saw MUPs increase 44% to 1.5 million and ARPMUP increase 55% to $65. We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business and newly launched states that were not included in our previous guidance.”

MUP = Monthly Unique Payers

ARPMUP = Average Revenue per MUP

Technically, their macro chart is really shaping up on the weekly. They're currently somewhat sporting a cup and handle as mapped out above. Regardless, it's giving great consolidation below all time highs as their business is ramping up. Looking for an entry through the $63 area.

Trigger: $63/63.25

Stop: $56.89

Target: $76-82+

Click Below for this week's Watchlist

Hope to see you in the chat Monday!

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