Over the past week, distribution hit the market. After a long run up, heavy selling came into both the SPY and the QQQ. Individual stocks have also been hit hard with AAPL selling off and FTNT gapping down over 20% on earnings. Similar action was also seen in CMG in mid-July. CLEH has been a major leader this summer, but looks like it is forming a small head and shoulders pattern.
While all of this can seem scary, it is my view that we are still early in the bull market, and this is a short-term correction that is merely allowing stocks and the general market to digest the strong gains that have been made over the past five months. This is where weekly charts really have an important benefit. When we scale back and look at the higher time frame, we can see that SPY looks to building a handle in a large cup and handle base. In addition, QQQ rallied rapidly on a high-angle of ascent over the past five months. A pullback should be expected at some point in order to digest those gains. In addition, I've seen so many choppy summers (particularly in August) in my time that I'm really never surprised to see the major indexes come in as the summer comes to an end.
So what does all this mean? First, and foremost, you have to manage risk. I really like MNDY and owned a position. However, I decided to cut it near breakeven this week as it lost its' 50-day moving average. My reasoning is that I can always rebuy it if it rebases and sets up again. Even stocks like FTNT or CMG which have been hit hard can rebase and set up again. The key is you don't want to be holding any losing positions through that basing period in case you are wrong.
PLTR is still in my portfolio because it continues to act so well. Because I have a healthy profit cushion, I feel comfortable sitting through any reactions it has as it announces earnings this week.
And for stocks like NVDA, RIOT, and MARA which I do not own, I'm keeping them on my watchlist to see if they can clear important resistance levels. Finally, for my long-term ETF account, I'm viewing a pullback as an opportunity to add to my position. In my opinion, a pullback towards the $420 range on SPY would be an absolute gift considering how early we are in this new bull market. Time will tell what the market decides to dish out.
Risk right. Sit tight.
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Full Disclosure: I currently own Palantir, SPY, and QQQ.
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