Market Outlook
Talk about a wild week for the market. It might have felt boring the last few weeks avoiding the chop but side stepping the sell off on Thursday. That is trapping a lot of traders was worth the patience.
If you were sitting in cash late in the week, its a great feeling to see a brokerage account sitting still while you are seeing all market panic. Some of the rules that I try to teach in the book may seem boring such as avoid margin, leverage and earnings. But by avoiding them, we can avoid those overnight haircuts that wipe out months or years of hard work in a snap.
Semi's like FORM or SMTC lost 30% of their value in 2 days, with just 2:1 margin that could have been a 60% loss for some traders. Times like this are reminders why we have some trading rules set in stone. You may have followed some of the rules sometimes, instead of all the time. Having stop losses in all the time, is a lesson that often gets etched in stone for the trader who gets stuck in a name after the Thursdays sell off.
It was great to hear the overall positive tone from the members in the chat because we able to read charts and can see the stages to avoid. While if you look on social media, people are clearly panicking. Because those people do not have plans for when they are wrong and the emotional side of there brains take over.
Last week, we saw the AI bubble finally burst, and usually all it takes is one trading day to flip the script on what everyone has been preaching. The pivot went from AI is the going to replace all jobs, to its too expensive. Now the charts have been showing us that, but when the story changes is when its often time to jump ship.
Even NVDA, the semi king for most of the rally except for this past year. Is starting to show early signs of a major topping pattern and a classic head and shoulders pattern. Which looks very similar to how BA looked a few years back when they were the leading Dow 30 name. Avoiding semis for the time being, is the move.
Now zooming out a bit, Nasdaq has been the leader as just a month ago they high new all time highs. But a month later, they are in correction territory as macro support is breaking. After correction type moves, there is often a small army of dip buyers who want to get the 10% discount which can lead to a short term bounce. If we get one on Monday and even into Tuesday, it would be more of a trap then a great time to buy.
It does seem that we should be thinking more of the 200 day to act as the real spot to buy after it shakes that area. Just like on the way up, it feels like it will go on forever. Just think of how far some Semi names went this year and it felt like it was never going to end, yet here we are. On the way down, it often feels equally the same, that the sell off will last forever, yet it often occurs in way less time.
Since 2020 each major market shakeup often had about 1-2 months in the tank where fear ran rampant, we've had about a month of weakness but really only a day or two of actual fear.
Just look at the S&P, in this 4-8 weeks of fear context, the S&P had its first real week of fear at the end of this week. So with that being said, we need to continue to be patient and if you must take a quick trade here and there as there have been set ups that have been working but you need to be quick.
One to two day moves are the thinking, quick jab type of trades, risking 1% to make 3-5% quick and onto the next. This is not the time to try to build a position or hold a name for weeks on end, the chop will just shake you out.
If you are newer to the group and its your first time experiencing a market correction, here is a simple piece of advice to avoid unnecessary losses and it is really simple. Before you put any capital to work, simply share your game plan. A loss avoided is far better then putting on a trade that could have been avoided.
From Bennett
Founder Big Picture Trading
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Sensitive - sectors that have moderate correlations to overall market conditions.
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Cyclical - sectors that are more sensitive overall market conditions.
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Defensive - sectors that tend to outperforming during sub par market conditions.
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EWTX
FAST
GSAT
MSFT
MSGE
Avoid NVDA
A few years back BA was the king of planes, until a head and shoulders topping pattern formed. We are starting to see the same from NVDA. A name that has gone virtually no where when the semi sector has gone on such a crazy run.
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