To The Moon

Sputtering rally

The markets $DJIA(.DJI)$ , $NASDAQ(.IXIC)$ and $S&P 500(.SPX)$ all moved down decisively on Wednesday. What was supposed to be a rally into the new year seems to be sputtering and that puts me in an even more cautious mode. The good news is it is all on low volume. However the weakness in the market is reflecting the wariness on the part of participants. The bulls are not willing to take any risks and to be honest not many are around judging from sentiments as well as price actions.

Technically, we are approaching 3765 on the broad market index which is kind of key being the very recent lows we bounced off of. Breach that and the 76.4% retracement at 3640 beckons. Beyond that and the 100% retracement at 3500 looms for a possible double bottom scenario. So considering market weakness and risks at key levels, I believe caution takes precedence and I am holding off any more buys until market gets clearer.

I believe next week is key. That will be when key traders and volume will return. If we can hold the key levels, there still might be a chance of that new year rally. What is keeping me optimistic is the strength of the Dow as well as global markets such as the Canadian index. Those are still aligning bullishly and markets tend to move in tandem especially in third wave moves down so a market flush in that form still isa lower probability to me. Another thing is thateveryone seems to be positioned bearishly from sentiments and put/call ratio. Markets don'tusually move in the same direction. That has to reset before a meaningful flush which I believe might happen if a rally does take place. Where that rally takes us is where I will raise cash.

This is a very tricky and challenging market indeed and not one for the faint hearted. I am positioning cautiously for a short term rally intonames that I am prepared to hold. That meansonly profitable names that are in secular microtrends that I personally believe in. I was bullish on clouds and cybersecurity and still am but the macroeconomics just do not warrant the risk so I am closing small positions in Snowflake and Sentinel One. Datadog is the only one cloud name that I might probably hold but that will be a small position. 

Names that I will hold long term are $NVIDIA Corp(NVDA)$  , $Advanced Micro Devices(AMD)$  and $Taiwan Semiconductor Manufacturing(TSM)$  .

Thanks for reading my commentary.

Stay safe! 😊