Before getting into all the news and actual trading stuff - want to take a moment to talk mental capital. These markets are moving fast as hell and in a news driven environment with headlines causing drastic moves seemingly every hour, it’s never been more difficult day to day. While there is so much opportunity for us in these markets that trade huge ranges with big volatility, it’s more important than ever to keep that mental clarity in check. Make sure you continue to journal your trades and get off the screens a bit this weekend to be ready for Monday.
We began the week with a huge gap down Monday that we did a great job in pouncing on as it flew higher. Tuesday saw a gap up get faded back to lows and Wendesday of course was the near-record setting day that saw the S&P up 10.5% when Trump gave tariffs a 90 day pause for everybody sans China. Thursday we had an inside day that at brief moments had us near circuit breaker levels with the S&P down nearly 7% which would have caused a 15 minute market halt. Friday saw more positive action off Wednesday's move that gave us more and more higher lows. What a week!
Do we have a bottom on our hands? No idea. Do we have a tradeable bounce on hand? Absolutely. It seems Trump did a 180 on tariffs. We got news over the weekend that Trump is exempting items like chips and smartphones from tariffs which has the Nasdaq soaring over the weekend. The best part of this scenario was always that it was manufactured and easily removed so hopefully we see more and more concessions to get us to a more trending environment.
The key signs this week for the continued bounce was the way we shook off bad news in a major way on a few different occasions. Between the escalation on Chinese Tariffs, rates exploding higher and the bond market in major jeopardy, stocks still chugged higher.
The major troubling sign to me heading into Monday is looking at the extreme bullish positioning in the put/call chart along with what appears to be a massive gap up. There are tons of nice charts setting up, but with the huge gap likely incoming, it will be a tricky day. We are still in a bear market trading below the 200sma so we need to be as tactical as ever for new entries. Even if you get direction right in this market does not mean you will make money if you're too late to the move and looking to use a tight stop.
We need to remain flexible in our thinking in this market. Things can change very quickly. You need to have plans A, B and C. For example, you’ll see in the report below there are a bunch of long setups I really like heading into the week, but if we see big selling take out fridays lows, I will change stance and look to short those new lows.
Overall, think we can have a tradeable rally back up to test the 200sma in SPY and QQQ. That is about 8% higher from where we closed in the SPY. If we walk into a 3% Monday morning gap, I will be very cautious and not look to chase the gap up until we pull in to support.
Markets closed Friday this week.
Let's get into the report.
