NO VIDEO MARKET OUTLOOK THIS WEEK
Living rural in Northern New Mexico is amazing as I have the Rockies right in my backyard, but it comes with its sacrifices. There are no schools where I live, so I had to drive 9 hours to drop my kid off to her boarding school across the state. I was unable to work on my video market outlook this week, so publishing this in the old blog style format.Â
The cat is alive and a v-shaped rally is still happening. What could go wrong?
Ok, enough with the cat references. In last week’s market outlook I had outlined what confluence factors could line up for a v-shaped rally to materialize. These factors were:
- VIX getting crushed below 16 (already happened)
- SPY taking out Fib 61.8% retracement level (already happened)
- EMA crossovers (already happened)
 Basically every single confirmation that anybody could ask for has already happened. The question now is – are we going to get a breakout and another blue skies rally? The answer is not that simple. Why? Because we are living in an environment where markets can reverse and move 2%-3% in a single day on any sort of unexpected inflation related data.
Although, I have been nibbling at call spreads here and there, there are two things that can go wrong here:
- SeptemBEAR is fast approaching and all trades taken from now on will fall into September expirations. As you know, September is a horrible month for the markets (if you believe in seasonality that is) and is known to bring huge corrections with it.Â
- Another major market moving event – The Jackson Hole Economic Symposium. It has basically become the Davos for central bankers. It happens once a year in August and is kind of a big deal because Powell usually gives a speech that can set the tone for monetary policy. These speeches often cause ripples in the markets, as investors scramble to adjust their positions based on what they hear.
RRG charts – Are these charts wrong?
RRG charts have been showing money leaving the markets for over a month now. The Japanese Yen carry trade shock to the markets did not reflect in these charts, neither has the v-shaped rally registered yet. Are these charts wrong and should we throw them into the trash?Â
Well, these charts are just another tool in your toolbelt and have their own place. As I have mentioned in the past, RRG charts show you money flow in the markets. Which sectors money is going into, which sectors money is flowing out of, and all the fun stuff. They give you a bird’s eye view of the investing landscape and are not helpful in gauging daily market movements or knee jerk reactions. Having said that, if we get a breakout here and a blue skies rally, that will put a serious dent in my confidence in RRG charts.
Watch this video if you haven’t already: LINK: https://tradingextremes.com/sector-rotation-secrets-picking-the-right-stocks-to-trade/
EARNINGS: Several interesting earnings next week
Quite a few stocks from our watchlist are reporting earnings next week. Take a look below if you are interested in any post-earnings trades.
VIX: Crushed into a pulp?
- VIX is back below 16 which presents a bullish scenario.
- Since we have a gap up in the markets, (see SPY chart above), we could see a small pullback next week. But that pullback can simply be considered a buy the dip opportunity as long as SPY doesn’t start dropping below the gap and VIX stays below 16.
Trading plan for next week
- Because of the Jackson hole speech next Friday, I am going to split my trading allocation into 50/50.
- I will use the first 50% by reacting to what the markets are showing me in the first couple of days of next week
- I will save the rest of my trading quota for Friday so that I have the capital left to adjust to any unexpected market reaction to Powell speech. I still believe that this rally can fizzle out giving us a double top formation. But that scenario is just a remote possibility right now.