Trading Plan: 31 January 2022
All indexes rallied on Friday. Nasdaq ripped 3.13% while mostly all the Technolgy stocks bounced back influenced by the great Apple earnings report.
But there was no higher volume to consider Friday a Follow Through Day. Since net lows outpaced the net highs and volatility is still high, caution is still recommended, we are still in the oversold territory. As per IBD, the market is still in a correction.
SP-500 surged 2.43% and it is now very close to the SMA200. A sharp rally is possible due to the moment euphoria. More than that, if the price goes over SMA200, we may see a short-covering rally.
I expect (and prefer) the price to have a test of the lows and to form a solid base for a few weeks before talking about good conditions for trading. But the market doesn’t care about what I think, we need to be prepared for different scenarios.
There are more earnings reports to come this week, let’s see how companies did during the last Q. But more important is the market reaction to them.
Apple ascended 7.21% and reclaimed its 50-day moving average after a star-studded earnings report. Good to see the SP-500 heat map predominantly green again.
The downside for growth stocks appears to be fairly limited here, many of them being hit very hard. Of course, anything can happen, I just observe, not predict.
The flagship ETF from ARK Invest, after an incredible run in 2020-2021, ARKK is close now to the pre-Covid levels. Mark Minervini said that for a leader, there’s a 50% chance it will drop 80% and an 80% chance it will drop 50%. Again, he nailed it. ARK just published their Big Ideas 2022 study. A summary can be read here.
Crypto found some relief as equities turned green. Ethereum gained 4.75% on Friday and now trades back above $2,500. Bitcoin bounced 1.8% to $36,850.
Sectors
Best yesterday sector: Technology, then Real Estate. Worst sector: Energy.
Best weekly sector: Energy, then Financial. Worst sector: Consumer Cyclical.
Best monthly sector: Energy, then Financial. Worst sector: Technology.
Sentiment
NAAIM (weekly, neutral between 70 and 90): 53.39
VIX (neutral under 20): 27.66
Equity Put / Call Ratio (neutral between 0.7 and 1): 1.03
CNN Fear & Greed: 36 (Fear)
Breadth
Stocks above SMA40 (neutral between 30 and 80): 20.87%
Stocks above SMA200 (neutral above 30): 26.30%
Number of stocks that increased yesterday by more than 4%: 486
Number of stocks that decreased yesterday by more than 4%: 80
Noteworthy Earnings Reports / Events for today
And the view for all week:
What to trade today
I do not know if this is the bottom, but I covered all the shorts. Not out of the woods yet, but I look for some possible longs. Test position for now (1/2 or even 1/3 regular position size).
Targa Resource ($TRGP) in Energy, cup and handle, Entry above the Friday high with Stop Loss at Friday low.
Deere & Co ($DE) tried a few times to break the resistance and showed good RS during these days. If above the black line with volumes, I will enter. Stop Loss at EMA21 area.
Mastercard ($MA): I liked the price action from Friday, the wide range bar from EMA21. It might be a little bit extended, I will watch for a pullback as the uptrend might continue.
Robin Hood ($HOOD): very good volume on Friday, this might be a signal for a good momentum. Check price action, if all is good, an entry above Friday high might work. Stop Loss: 5%. This is a risky trade.
The growth stocks seem to build a base, I keep watching them for a possible entry above a constructive base. Good price action for $DDOG, $ZS, $AFRM, $CRWD, $S, $PRFT, etc.
CrowdStrike ($CRWD) might set a base here and breakout back to the highs.
$Data Dog ($DDOG): the same idea. This is a very strong company and there are many chances to be one the first to signal the end of the bearish trend. Keep an eye on it (and on the growth / SaaS / Cloud stocks as well).
Do your due diligence if or when placing a trade. All ideas stated here are my own and do not represent trading or investment advice.