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Having A Market Philosophy Is Everything
All eyes were on Jackson Hole on Friday as the markets reacted to the "not dovish" statements from the Fed, sending stocks down almost 3%. This was really one of the bigger moves we saw in months, and the market certainly did not expect it.
What was nice though was the fact that we saw bonds break out of the bottoming formation we have been waiting for. Our original theory was that a slowdown in rate increases will ultimately be good for technology stocks
Does that thesis change after one day of divergent price action? Well, I think you have to give yourself a chance to be right. If lets say rates were shooting up, bonds went lower and stocks went lower on Friday -- I would not be bearish at all. In fact, we would be looking for new lows across all index classes. Nevertheless, bonds went up. Energy dropped. The divergence expanded, but should that be expected o the backdrop of a large catalyst like Jackson Hole? Maybe.
It is funny, when we put out a quick piece on markets being overbought and a decline should happen, we got some pretty big heat from technicians and people assuming that the market has turned. Yes, sure maybe. The same heat is now on us for thinking this market should hold if rates and bonds start to hold up.
Look, we all have to operate under a market philosophy. Style drift is the real killer of speculators. I focus on market prices, sentiment and using timing indicators to find good risk-reward trades. From a technical footing, we are brushing off those overbought conditions and the RSI is now getting back into a neutral territory. We are on 7/9 of the TD Buy Setup and above TDST on SPY for example.
Here were our trades from this week in Discord. Friday did hurt a little bit, we ended up taking a 5% loss on GOOGL (not 1.74% shown) and buying some QQQ calls into the decline ended up proving to be a dud. There are some names I really like on declines still, and you can see open trades down below.
I think the gist is to be open-minded / light footed until the technical picture becomes more sound and then really take advantage of just how bipolar market sentiment has been. I do like buying risk but only once we show signs of an intraday bottom on Monday / Tuesday.
Want to hang out in real time and trade? Join the Discord server. Hope to see you in there.