The Sentiment Rollercoaster
The uncertainty within the markets prevailed last week, as every day seemed to bring a new .5-1% swing in the major indices. Big down days were followed by big up days, and vice versa.
This kind of movement is typical of uncertain markets and markets that are actively trying to shake out the "dumber" money usually associated with retail investors. Investors who "buy the dip" end of up getting rewarded, only to lose it all the next day. This is meant to frustrate traders to the point of capitulation. Capitulation by retail investors usually means that a rally is just around the corner. The idea is that the moment investors throw their hands up in the air saying "I can't trade in this market, I'm out" is the exact moment that the market decides to take off without them. They are then forced to buy back into the market at higher prices.
Even some of our more seasoned members felt the need to sell it all and start fresh towards the end of last week. Don't feel alone in this emotion; this type of market action is exhausting.
As an aside, we're continuing to notice a strong dissociation between the markets and any political news that's been rolling in. It seems that these daily swings in the indices are fueled purely on internal market conditions rather than external factors.
Last week, we took some short-term losses being a little too early to the AMZN trade but made up for it by booking some solid gains in other positions. We sold the second half of our BAC calls and the AA calls that we had from a few weeks back, locking in 400% and 72% gains respectively.
We initiated positions in ATVI and SBUX, both of which have strong upside potential with very limited downside. Our ATVI calls that we bought on Thursday are up 50% already on a multi-month expiry. As always, our Platinum members get trade alerts the moment we initiate or close out these positions.
Last week, we cautioned against entering positions unless some strong bull trends surfaced. This strategy ended up paying off, as trading last week was about as ugly as it gets. Sometimes it's important to be reminded that cash is a position.
We want to reiterate the importance of patience in a market that churns and burns investors who hop in too quickly. The NASDAQ held some pretty important technical positions last week which is bullish in general. Were it to break these levels in the coming weeks, we would start looking for some insurance in the form of puts. Either way, we want you to watch where this one is headed before diving into a position.
Q2 is over and earnings will be rolling in from some important players in this market. Events like earnings can be catalysts that turn uncertain markets into certain ones, in either direction.
We tend to not play earnings unless we find irresistible setups that seem to have nothing but upside. Instead, we'll watch how the market reacts to this round of earnings. The bar is set high, and earnings beats could sent us up to new all time highs.
Some notable earnings to watch would be the big banks, who report Friday morning (JPM, C, WFC). Banks have been breaking out recently and earnings could just add more fuel to this fire. It's also worth noting that if banks show signs of weakness, they could easily bring down other shaky sectors like tech with them. We wouldn't buy here, but these earnings reports will tell us quickly which way we're headed.
Oil and materials also held technically key areas, and we expect to see them make some headway towards their highs from last week. We picked up CHK common, just to ensure that when this move higher occurs, we have exposure to it. We also wouldn't mind adding a little more X here at the lower end of its range. There will probably be room to make some quick trades in these areas if you're ready this morning.
- The Minotaur Team