Macro Analysis (Covering QQQ, DIA, SPY this week as we are seeing some divergence)

We saw some divergence between the Indices last week. DOW is moving up but Nasdaq was under pressure. However, VIX hasn’t spiked up and continues to go down. Why? Well, VIX measures the expected volatility of SPX Options and SPX is pretty much in no man’s land, which is what we are seeing in VIX with that DOJI candle representing indecision. 

SPY observations – (No clear direction)

I was expecting SPY to pullback after testing $455 last week before resuming its uptrend. However, not only did it take that level out comfortably, it blew past $460 before pulling back. This is a very bullish development. We got a decent sized pullback last week but have managed to respect the support at $440 and didn’t even test that support area. The tech sector was the worst performer last week. And although tech makes up 30% of S&P 500, SPY hasn’t been affected as much and has managed to break the downward momentum and reversing course to the upside. Right now, SPY is not showing any clear direction and we should know by Tuesday where this market wants to go.

What to watch for in the coming week

• Full Bull: If we take out $460 again next week, expect this rally to pick up steam.
• Deeper Pullback : A new support zone seems to be forming around $443. If we fall below that, expect a deeper pullback to $440 or lower.  
• Bearish: Bearish scenarios will only come back into play if we fall below $435 so I am not entertaining them at this point.

DIA observations – (Very Strong)

DOW really held it’s head above the water last week and is looking the strongest amongst all the Indices. With interest rate hikes helping the finance sector and Big banks beginning to report earnings next week, I expect DOW (DIA in our case) to continue it’s upward trend. If we get a slew of good earnings next week, it is very possible that DIA can take out that previous resistance around $355-$356 area

What to watch for in the coming week

• Full Bull: If we take out $355 again next week, expect DIA to blow past the resistance and keep heading up.
• Deeper Pullback : DOW has nicely respected that $340 support area, so I don’t expect a deep pullback now unless the Banks mess up their earnings and future guidance next week.  
• Bearish: N/A – Not entertaining Bearish scenarios for now.

QQQ observations – (Not looking pretty)

Tech and growth has been unsurprisingly beaten down because of the interest rate hikes and Treasury yield spiking to insane levels. Since we don’t know for sure if this divergence between Nasdaq and DOW Jones will become more pronounced going forward, my suggestion is to be very diligent about spreading your trades across sectors. This holds true at all times but since tech is looking weak, you could look for Bear Puts on stocks  in the growth sector. I did take bullish trades on NVDA and COUP last week, but if we see further weakness in QQQ, I will hold back on going too bullish on tech.

What to watch for in the coming week

• Full Bull: It is hard to imagine bullish scenarios in QQQ right now, and I wouldn’t be bullish on tech unless Qs do a turnaround and take out that $370 resistance. 
• Deeper Pullback : At this point, the $342 downside target seems more real than any upside targets but we should get a confirmation by Tuesday on where the overall market is heading.
• Bearish: If Qs cannot hold $340 support level, the markets can get into trouble. If you remember some corrections from last year, it has happened at least twice that QQQ started showing weakness first even when DOW was making new highs and the downward pressure eventually brought down the entire market. I will continue to add Bear Put Spreads next week to make sure my portfolio is balanced between bullish and bearish bets.

TNX (Insane spike in Treasure Yields)  

If you haven’t looked at TNX recently, take a look. It ain’t pretty! By last year we were worried about TNX touching 20. TNX has now gone parabolic. And unsurprisingly, this is what is manifesting as weakness across the Tech/Growth sector. 

Bitcoin (Can it break out of it’s Bear Market?)

Bitcoin’s first move up to $48K was the first sign that the Bear Market that all crypto currencies have been stuck in, is about to come to an end. If Bitcoin can reverse from here and take out that $48K level, we have an all clear signal for crypto currencies!

Portfolio Allocation:

For new members, you would want to trade at 30% allocation. For existing members, who bore the brunt of this deathly correction, you will need to slowly keep stretching your portfolio to make up losses. I am personally between 55% – 60% portfolio allocation and very close to making up my losses from the last 3 months.

Key Takeaways:

• Keep portfolio balanced between Bearish and Bullish trades
• Weakness in QQQ is looking scary. We should know by Tuesday how things shape up. A divergence in the markets is not good news as weakness in one sector can snowball into others.
• Wednesday and Thursday brings some important earnings.
• Friday – U.S Markets Closed.  

CHEAT-SHEET