Talking Technicals -- November 26th
In the spirit of Black Friday deals, I’m running one for my Stocktwits room. Click on this [link] for 25% off the annual plan. Stocktwits is where I post my daily activity, technical analysis, current portfolio, market commentary, etc. — use the code “BF” at checkout to get the 25% off.
I also wanted to mention my friends at TrendSpider are doing a 60% off sale for Black Friday which you can lock in with this link [click here]. TrendSpider is the only software I use for technical analysis — as you’ve probably noticed from every writeup/newsletter over the past two years — so I have no problem supporting them with a Black Friday deal.
I’m planning to spend the next 2-3 hours going through some charts and sharing what I see (good and bad).
Just a reminder that I’m a long-term growth investor focused on companies with strong fundamentals. Even though I watch the technicals closely, my decision making and dollar cost averaging will always skew towards the fundamentals. Where I use technicals the most is deciding when to add on pullbacks (10/20/50/100d MAs or trendlines), when to trim existing positions (as they get overextended) and where to use stop losses on new and/or lower conviction positions.
Today I would have started out with CELH (Celsius) since it’s my biggest position but instead I did a mini-writeup last night which you can read here:
SPY — S&P 500 Index
SPY continues to look strong, better than QQQ, broke through DTL resistance this week from the August highs while reclaiming the 200d EMA and now has the 200d SMA just above at $404.80 — the 200d SMA is where SPY got rejected this summer which led to a 19.4% selloff into the October lows. If SPY gets rejected at the 200d SMA again I’ll probably raise 15-20% cash in my portfolio. The 5d EMA is right at $400 so that’s the level I’d expect to hold in any short term pullback this week otherwise we lose DTL support and everything starts to look ugly again.
QQQ — Nasdaq Index
QQQ is lagging behind SPY since the October lows with QQQ up 12.5% and the SPY up 15.4%
Whereas SPY pushed through resistance this week, the QQQ is still trying to get through this DTL after getting rejected on Wednesday and the pulling back to the 5d EMA on Friday. QQQ is potentially setting up for a nice breakout here if we see continued cooperation from Treasury yields and the USD. There’s no major macro to worry about until we get to the CPI report on December 13th followed by the final FOMC decision of 2022 and with no FOMC meeting in January it makes this one extra important. If we get a low CPI number in two weeks which leads to a slightly dovish tone from the FOMC and Powell then we could see a powerful rally into year end.
IWM - Russell 2000 Index
IWM looks interesting here, failed to stay above the 200d SMA/EMA from the prior week (was the best performing index off the October lows, up 13.5%) but now getting it’s mojo back, bounced off the 10d EMA on Wednesday and the 5d EMA on Friday. Sitting right at the 200d SMA with the DTL and 200d EMA just above. In the next few days we’re probably going to see a nice breakout or a nice rejection. If we see a rejection there’s a chance I raise some cash in my portfolio since 2/3 of my stocks are small/mid caps and need support from IWM.
LNTH — Lantheus (I have a position)
Since LNTH is my second biggest position (after CELH) I’ll start here. Like I mentioned the last two weekends, LNTH has great fundamentals and the valuation is extremely compelling (less than 20x earnings with 100% revenue growth although these numbers are not sustainable). I think you can own LNTH as long as it stays above the 65w EMA at $54.80
STEM — Stem (I have a position)
STEM might be one of my favorite setups going into next week with support on Friday at the 50d EMA and 21d EMA with 100d EMA just below that provided support on Tuesday and Wednesday. STEM closed above the VWAP from the September highs and appears to be on the verge of a DTL (down-trendline) breakout. I think you can own STEM as long as it stays above the 21/50d EMA. I think you can buy STEM on a breakout above the DTL resistance.
TSLA — Tesla (I have a position)
I increased my position in TSLA earlier this week as it bounced off the VWAP from the pre-pandemic highs. Last weekend I mentioned that the only two levels of support left on the chart were the VWAP from the pre-pandemic high (February 2020) and the 200w SMA. As you can see here we had a big bounce off the VWAP so I added to my position but I have no idea if it holds. If the market rallies into year end (with the help of another cooler CPI report in 2 weeks) then TSLA could lead the charge however if the markets head lower then I suspect TSLA will test the 200w SMA at $161.50
If you’re a long term investor I definitely think you can still own TSLA here with the intention of DCA’ing into the 200w SMA if we get there. If you’re a trader you might not want to chase TSLA after the move it made this week, after bouncing off that VWAP. Perhaps you wait for a retest of that same VWAP or hope we get a bounce off the 200w SMA in December.
Here’s how I approach possible bounces at VWAPs and moving averages… let’s say I think there’s a 60% chance that TSLA was going to bounce at the VWAP from February 2020 at around $166.50 but also knowing the 200w SMA was just below at $161.50 —and let’s say I have a $100,000 portfolio and I want TSLA to be a 6% position. I would have put in some limit orders for TSLA shares starting at $169 down to $166 but then I would have had a stop loss on 2/3 of those shares at around $165 with more limit orders just above the 200w SMA and a stop loss on those shares just below the 200w SMA at ~$160. When stocks approach a major VWAP on the downside you never know for sure where or when it will bounce or will it just blow through. You also see volume rip higher around these VWAPs as buy orders and sell orders are getting triggered quickly. With smaller companies you’ll sometimes see heavy selling at these potential support areas because the big funds are trying to blow people out of their positions but triggering as many stop losses just below support as possible so they can then flip over to the buy side and start scooping up shares. This is why you sometimes see these massive bounces off these areas. Same this happened with CELH on Tuesday off the 100d EMA
Back to my TSLA example, if I wanted a 6% position in TSLA and I thought that VWAP is where I could build it then I would have used 4-5 separate limit orders from $169 down to $166 (here’s an example: $169.00, $168.25, $167.50, $166.75, $166.00) however if the VWAP didn’t hold I would have had a partial stop loss for 2/3 of these shares at ~$165 (so I’d keep 1/3 of the shares in case TSLA bounced before getting all the way down to the 200w SMA) and then I’d have 4-5 more limit orders going into the 200w SMA but this time tighten the spread to $0.50 (ie $162.50, $162.00, $161.50, $161.00) but then I’d probably have a full stop loss below the 200w SMA because that’s the last line of defense for TSLA on the charts. In this scenario I would not mess with TSLA under the 200w SMA meaning I’d only restart a position once that 200w SMA was reclaimed and then I’d continue to have a stop loss below.