QQQ – Finally participating in the rally
Markets appear to be heading into an early Santa rally this year. The QQQ (or tech sector), a laggard in recent weeks, has finally started participating in the rally. As we know, face-ripping rallies typically require the involvement of risk assets. For bulls, last week’s tech turnaround is an encouraging signal.
DIA – Pulling back?
Dow Jones started this rally after Trump got elected but seems to be losing steam. I don’t see any reason for a massive pullback or correction before year end, so we could see a shallow pullback here which is going to be a buy the dip oportunity. If DIA stays under pressure, 440 is my downside target for a bounce.
RRG charts – Painting a very bullish picture
RRG charts may lag by a week, but the sector rotation picture is clear: risk sectors are firmly in the leading quadrant, while consumer defensives remain in the lagging quadrant. Although XLK hasn’t caught up yet, as long as tech continues moving toward the leading quadrant, the signals remain strong for a year-end rally
Divergence Signs – Failing
All divergence signals I use to measure the strength of rallies, and to gauge possible upcoming corrections or pullbacks are also supporting a very positive end to the year.
Macro Events – CPI, PPI
When you are so sure that markets will go one way or the other, somebody or something always shows up to ruin the party. And that could be CPI next week. If CPI doesn’t give us a shock, markets will continue to go up making new all time highs until year end.
EARNINGS: Pretty dead until Jan 14th
Earnings will keep trickling in as usual but until the 2nd week of January, we can expect a level of calm as no major market moving earnings are lined up until then.
Trading plan for next week
- For Maya beta testers, we will keep working on the ‘fill issues’ and hope to find a solution. Maya has taken 22 trades so far but our group members haven’t been able to grab more than 3-4 trades. The fill issues with trades have caused a set back on our beta testing, but we did notice that SPY and DIA are now offering .50c limit prices for 1-2 strikes OTM now. (Originally we were forced to go out 5-6 strikes OTM to get .50c limit price). Hopefully this situation will get fully resolved on its own.
- For our regular group, keep trading as long as markets continue to rally, save trading capital for Wednesday (CPI). Keep watching DIA as it is going into a pullback and will offer buy the dip opportunities soon.