Greeting all and welcome to another exciting trading week,
It is with great pleasure that I present another bullish set-up to start the first full trading week of May. Since the month of May is typically associated with a catchy phrase "sell in May and go away", on top of the fact that the market started to clear some deep in the money positions late last week after a very high run-up on tech earnings, as well as a big run-up in VIX on Thursday and Friday last week, gives me a compelling reason to take some bullish positions.
Here's why:
Politics
1- Trump started to deflect blame for the coronavirus pandemic on China since he is viewed by many policymakers to have had an inadequate response to containing the virus. He has proposed that China pay more in tariffs to make up for the damage caused by the pandemic that originated in Wuhan. In my experience, every Trump China dip has been a buy so far and the reason is simple. The U.S. And Chinese economies are very intertwined so any aggressive action is unlikely to come at this time especially so close to an election so whatever the U.S. president says is purely rhetoric coupled with the fact that world economic growth is in serious contraction and will take much longer to recover than usual. Trump has been known to launch his China tariff attacks when the stock markets are flirting with all time highs, however this time it is different for the above reasons mentioned. The real beauty of it comes from the hedging some fund managers will take and probably never need, creating a launchpad for stocks on another short-squeeze. As well as the general fear and paranoia that persists in the money managers minds due to the ongoing U.S. recession. It forces the market to be well-hedged and prepared for any pullback preventing another major panic. In my opinion the fear may return but only late next year if the Covid-19 makes a return.
2- Talk of more State bailouts and additions to PPP fund should help to jawbone the market higher
Technicals
3- building support along the 200 EMA on the hourly (equivalent to about 20 EMA on daily) and bounced off it today
4- drop from hourly RSI overbought levels coincided with small pullbacks each time due to high VIX
5- Both times hourly RSI entered high oversold areas it presented a great buying opportunity which pushed volatility down and stocks back up over previous resistances
6- MACD presents another good set-up from very bearish momentum of last week
7- orderly consolidation from the April 17 highs and a new month with more new money coming in
8- using the April 2020 playbook there should be at least two solid up weeks in May
For the trade
I believe the qqq's will trade north of their 223$ resistance point this week and once that is breached could run as high as 230$ the following week before hitting another resistance based pullback.
It is with great pleasure that I present another bullish set-up to start the first full trading week of May. Since the month of May is typically associated with a catchy phrase "sell in May and go away", on top of the fact that the market started to clear some deep in the money positions late last week after a very high run-up on tech earnings, as well as a big run-up in VIX on Thursday and Friday last week, gives me a compelling reason to take some bullish positions.
Here's why:
Politics
1- Trump started to deflect blame for the coronavirus pandemic on China since he is viewed by many policymakers to have had an inadequate response to containing the virus. He has proposed that China pay more in tariffs to make up for the damage caused by the pandemic that originated in Wuhan. In my experience, every Trump China dip has been a buy so far and the reason is simple. The U.S. And Chinese economies are very intertwined so any aggressive action is unlikely to come at this time especially so close to an election so whatever the U.S. president says is purely rhetoric coupled with the fact that world economic growth is in serious contraction and will take much longer to recover than usual. Trump has been known to launch his China tariff attacks when the stock markets are flirting with all time highs, however this time it is different for the above reasons mentioned. The real beauty of it comes from the hedging some fund managers will take and probably never need, creating a launchpad for stocks on another short-squeeze. As well as the general fear and paranoia that persists in the money managers minds due to the ongoing U.S. recession. It forces the market to be well-hedged and prepared for any pullback preventing another major panic. In my opinion the fear may return but only late next year if the Covid-19 makes a return.
2- Talk of more State bailouts and additions to PPP fund should help to jawbone the market higher
Technicals
3- building support along the 200 EMA on the hourly (equivalent to about 20 EMA on daily) and bounced off it today
4- drop from hourly RSI overbought levels coincided with small pullbacks each time due to high VIX
5- Both times hourly RSI entered high oversold areas it presented a great buying opportunity which pushed volatility down and stocks back up over previous resistances
6- MACD presents another good set-up from very bearish momentum of last week
7- orderly consolidation from the April 17 highs and a new month with more new money coming in
8- using the April 2020 playbook there should be at least two solid up weeks in May
For the trade
I believe the qqq's will trade north of their 223$ resistance point this week and once that is breached could run as high as 230$ the following week before hitting another resistance based pullback.