Over the past two weeks, we've started to see a change in character in the market. While I'm still bullish on the market long-term, distribution has started to pile up and individual stocks are getting hit. Some stocks that have been hit hard recently include NVDA, SMCI, AAPL, UPST, FTNT, and CMG. Damage to leading stocks NVDA and SMCI is worth noting.
I was actually forced into cash this week as my sell rules were triggered. For instance, I had to sell MNDY last week as it lost the 50-day moving average, and I was knocked out of PLTR around breakeven as it lost its' 50-day moving average as well. These are two stocks I was hoping to hold for bigger moves, but I never argue with the market. I was also stopped out of some other trades when my stop loss was triggered.
I also exited QQQ as its' 50-day moving average was breached with distribution starting to show up on the chart. That trade is outline below as an example of how to use the 50-day moving average to manage your trades.
I still own SPY in my long-term account and will be looking to add on any constructive pullback setups. As I mentioned last week, SPY may be in the process of forming a huge cup and handle base which would be very bullish from a longer-term perspective. The market, however, may need time to pull back to digest the gains from 2023. August and September are usually the weakest months of the year so it is logical for the market to pull in here.
When we look at the New Highs-New Lows, we can see that breadth has definitely improved from the depths of the 2022 bear market when new lows dominated the tape. We have yet, however, to see the rip roaring type of market we saw in 2020. The lack of new highs is solid evidence that the recent uptrend was led by stocks like UPST, META, and TSLA which had strong rallies off their lows but were not able to make new price highs. As the bull market strengthens, we will see a plethora of stocks hitting new 52-week highs as we did in previous cycles.
Currently, I'm seeing a market with lots of distribution, extended stocks getting hit, and not too many setups. However, I'm a person of flexibility. Once I see a change of character, that is a market under accumulation with lots of setups working, I'll be quick to change. Until that happens, I'm content to wait.
Risk right. Sit tight.
Full Disclosure: I currently own SPY.
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