More Pullback Than We Wanted

seekingalpha11-18

While a pullback after the Election rally was expected, it ended up being a little deeper than expected.However, we saw something similar in 2020, and, on balance, I continue to favor an end-of-year ...

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However, it got hit a little harder than I would have liked. The market put in what initially appeared to be a fairly orderly bull flag type pullback (parallel lines) towards the 10 EMA. If it had remained orderly, this looked ready to be the big buying opportunity I had been watching for. Unfortunately, Friday's trading was not what I wanted to see, with a big, ugly gap and drop in high volume, with the market confidently punching below the 10 and 21 EMAs and unable to find any buyers all day. Plus, we dropped back into the range set by this multi-month consolidation (faint grey line). QQQ Daily Chart (TradingView) The narrative is that Powell spooked the market with surprisingly hawkish verbiage, leading market makers to reprice the likelihood of another cut at the next meeting. More on interest rates below. If there is a silver lining, it is that we remain above the lows of the election trading week as seen on the weekly chart below, so I don't think this can be considered a firm rejection yet. QQQ Weekly Chart (TradingView) It is worth noting that we actually had relatively similar action around the 2020 election that was still able to lead to a year-end rally. You'll note the market put in an intermediate-term top (faint grey line) before laying a pattern of higher highs and higher lows into Election Day. The timing of the run-up and the election results is a little different compared to 2024, but you can clearly see three up days, including two big gap-ups as the market liked at least something it was seeing. Then, however, we had a big outside reversal day on high volume (fingerpoint down) and then a gap down to kiss the 50 SMA (purple). Again, this is not exactly what we are seeing today, but it at least rhymes. From there, the market was able to chop up and then trade sideways before firmly starting a new \"trending\" period. 2020 Election QQQ Chart (TradingView) So, while the action this week is not what I wanted to see and is somewhat concerning, there is at least recent precedent for this to resolve to the upside. In general, I continue to think a year-end trending period is more likely than not, but the action this coming week as the market digests the Election and Friday's reversal will be key. Interest Rates The big surprise to me over the last month or so has been the move in longer-term interest rates. Intermediate to longer term, we have been in a generally dovish environment, with the Fed generally interested in cutting rates right now. Yes, there is some wiggle up and down in the odds of a cut at this meeting or that, but the trend in the narrative was clearly towards lower rates. So... it's definitely worth noting action that bucks the prevailing narrative because that is the market giving you a clue. Some narratives to keep an eye on:  - The economy remains surprisingly strong, and we shouldn't be cutting into a strong economy - Core inflation has remained sticky at around ~3.3% - Trump's policies are going to be highly inflationary, and interest rates will ultimately need to be increased  Looking at the chart of the 30-year yield, you can see it has been generally falling for months... until the last month when it sharply reversed. Most interesting, you'll note that it put in something that looks like what would be a potentially buyable range (drawn blue lines). It then spiked up on the election in an overdone move, pulled back to the upper part of the range, then looks like they want to move higher. To me, this is the market confirming some of these narratives. If interest rates continued to chug higher, it would not be good for equities. 30 Yr Yield (TradingView) Bitcoin (BTC) Bitcoin. Looks. Great. I won't belabor this much because everyone and their mother is aware of the insane rip in crypto since the election. As I said LAST WEEK, seeing a six-figure handle sooner than later would not shock me at all. The key? Avoid FOMO. Price is extended here. Let's see if this, or some of its higher quality stock market proxies like Coinbase (COIN), MicroStrategy (MSTR), or even Core Scientific (CORZ) set good levels for add-on buys. Looks to me like it's starting to form a bit of a consolidation around 90,000 +/- 5k, but I would like to see it build out a little more. BTC Chart (TradingView) Semiconductors (SMH) Unfortunately, semis look terrible. With NVIDIA (NVDA) and Broadcom (AVGO) having been two of the bigger leaders of the market this year, this is concerning to me. The action is not good. You can see below that semis had a weak bump from the election, gapping and trading up but with unimpressive volume. They weren't even able to trade above the mid-October highs and then proceeded to not only erase all of those gains but then trade down through the 10 and 21 EMAs and then the 50 SMA while also dropping the bottom of the rising wedge pattern. SMH Chart (TradingView) Definitely not good action. NVDA has earnings on the 20th, and that might be the big catalyst to either get semis moving again or to confirm a meaningful pullback. Portfolio Not my favorite week in recent memory, with a lot of my names coming in pretty hard and some unrealized cap gains pulling a vanishing act. I trimmed and adjusted several names and also opened a small position in Affirm (AFRM) on a pullback buy. Longs include: Reddit (RDDT), GE Vernova (GEV), DoorDash (DASH), Rocket Lab (RKLB) (trimmed at highs), Tesla (TSLA), Astera Labs (ALAB) (trimmed due to the extent of pullback), Palantir (PLTR), DuoLingo (DUOL) (cut half on breach of 10 EMA), Zillow (Z), Roblox (RBLX) (cut half on breach of 10 EMA), Upstart (trimmed at highs... then more due to extent of pullback). I sold NVDA on its break on Friday, reasoning that I did not have much cushion heading into earnings in a few days and don't like the performance of the semis as noted above. I also closed my position in Gold for a solid, if unspectacular gain. As always, I am only highlighting a few of these holdings in this report for the sake of brevity, but I am happy to discuss more in-depth if requested in the comments! Tesla (TSLA) As discussed last week, this remains very high on my list for add-on buys, unless it completely falls apart. It's putting in a channel back towards the 10 EMA, and I will probably add small on a break and recapture of this MA. Preferred would be a 2-3 week sideways base under the recent highs. My most in-depth thoughts on TSLA were in a prior article. TSLA Chart (TradingView) Rocket Lab (RKLB) I had mentioned a few weeks ago that the space theme was in play. RKLB and Intuitive Machines (LUNR) have both been on the move, although the rest of the group has not been particularly impressed. Recent action is... great but also mixed. I bought my shares on a break of supply-demand level at the fingerpoint. Obviously, watching your stock trend up and then gap up 28% on earnings is always a good thing! But... that type of shooting star candle with a long up-whick often indicates that buyers are exhausted and sellers are gaining control. I cut half late in the day, locking in a nearly 100% gain. Sure enough, it traded down the next day before attempting a bounce. I'll be trending the remainder on my moving averages, but it would not be surprising to be sitting here next week wishing I'd sold it all into the earnings gap. RKLB Chart (TradingView) Watch List When I looked through charts this weekend, I noted a lot of stocks with action just like the market: a big election run-up followed by more pullback than I would like to see. Some of the market's true leaders - AppLovin (APP), GE Vernova (GEV), and Palantir (PLTR) look great and completely bucked the pullback. But those are extended and don't look attractive here. As with last week, my primary interest is in finding good spots to size up on names I am already in and think could do well from here. Crypto remains a big focus area for me, but, I'm not planning to FOMO into any questionable trades. Hopefully, some of the key names set good supply-demand levels. Ares Capital (ARES) While scanning, I noted that all the private equity managers - BX, KKR, and APO, BN - look great and have made some big moves in response to the election with very little giveback. Not hard to build a narrative here: Trump will have pro-economic policies which will result in higher stock market prices which will result in private equity companies being able to IPO their funds' holdings onto unsuspecting retail traders at high prices or to M&A them away in a more favorable M&A regime. This will create higher fund values and fee streams. ARES, however, is still forming a decent supply/demand level and could be ready to join the rest of the group. One downside to ARES, though, is that sometimes when you buy the lagging stock in a group... you get results that lag the group. But this could be one to keep an eye on. ARES Chart (TradingView) Blue Owl Capital (OWL) is another investment manager with a similar-looking chart. OWL Chart (TradingView) Vistra Corp (VST) This is one of the market's leaders this year and comes from the \"AI Power Provider\" theme that I've touched on in prior articles. This set a nice base but had a kind of ugly indecision bar in response to earnings. It ultimately decided to trade up, trying to push out of the range set by prior highs (pale grey line) before chopping down and back into it along the 10 EMA (pink line). If this tries to push out again, I'd be a buyer, although another calm sideways day or two would really set it perfectly. VST Chart (TradingView) One thing I don't love, though, is how its sister stock Constellation Energy (CEG) has been trading. If anything, CEG looks like a potential short, and that may not bode well for the group. Conclusion The market pulled in farther than I would have liked this week after breaking out on earnings. I continue to think a year-end rally is overall more likely than not, but it may need a little time to digest recent action. I will be keeping my watch list close at hand to see if the market is able to set some attractive buy spots. Remember, risk comes first. Trading is nothing more than a game of, on average and over the balance of many trades, selling stocks for more in gains than you stop out of in losses… then recycling that edge over again and again. If you want to learn more, the rabbit hole starts with William O'Neill's How to Make Money in Stocks, which may open your eyes to an entirely new investing philosophy and could give you the foundation you need to start momentum trading.  Chart Legend (Author's Own Work)","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484965991"}