Last updated on October 19th, 2020
With everyone focused on the elections and the next round of stimulus, the market has been in drift mode higher. With tech leading the way, we have seen another leg higher over the last few weeks. This has led to many stocks reaching overbought levels. As a result we have a tired looking market here this week.
The selling has been tame so far this week without any big damage done. With the strength in AAPL today, that is all that is needed to prevent any significant damage from being done. We need a market wide pullback if we are going to get anything going on the downside.
We are heading into the heart of earnings season over the next few weeks which is going to be crucial for the next big market move. Especially when you add in the uncertainty with the outcome of the elections. The financials kicked off earnings here this week and so far we have seen a mixed bag of results. BAC and C have sold off and GS and JPM have hung in there. A lot of good news is already priced into stocks here so if the earnings numbers disappoint at all there is room on the downside for some decent moves lower.
From a technical perspective, Monday’s high on SPY at 354.02 is our near term area of resistance. Above that and we could see another run at the all time high at 358.75. On the downside, we are looking at support at the 8 EMA which is at 345.08. If we break that level we are looking for a move lower to the 20 MA at 340.45.
Volume continues to be light in both directions. We would like to see 100 million shares trade on a daily basis but it’s been a grind getting to 50-75 million shares of late. We are certainly seeing a wait and see approach from many traders waiting for more direction on the stimulus plan and for the elections to pass.
Based on what we are seeing this week we are still trading from the cautious side. We are trading 50-75% of our normal position sizes along with using more vertical spreads. It’s hard to not lean bullish here still. With some of the tech names rolling over slightly the last few days, we could see a short pause before the next leg higher.
In the video below we cover a handful of trades that we are looking at for this week. These names include SPY, IWM, MRVL, BAC, and C. We also cover our latest Overnight Pop trade on SPY which we closed out for a nice winner this morning. The Overnight Pop trades continue performing really well for us.
Take a look at the video below and let us know if you have any questions that we can help with. We will be back on Friday for our next weekly recap. Mike@netpicks.com