Today, we’re going to chat about the overall stock market and the recent pullback, which is much larger than usual. I’ll be discussing what’s going on, what you should look at in your portfolio during this pullback, potential scenarios, and some actions you might consider taking. If you have any specific questions, feel free to write them in the chat, and we’ll get to them as we go along. Let’s get started!
Market Overview
Alright, let’s kick things off by looking at the overall market. We’ll focus on the SPY and QQQ, the standard benchmarks most traders watch. You could look at the Dow Jones, but with only 30 stocks, it’s not as representative.
Let’s check where we are and where we’ve been. I usually use candlesticks for recording purposes, but I personally prefer bars for their clarity. I’ll overlay a few exponential moving averages (EMAs) such as the 21, 34, 55, and 89 – all Fibonacci levels. These help in identifying support and resistance levels.
Market Analysis:
- The market has been rolling over after reaching resistance around the 4700 level.
- We’ve seen a pullback with minor bounces and now we’re trying to hold at the 4500 level.
- Historically, markets tend to retrace after becoming oversold, so we might see a counter-trend bounce to around 4600.
Despite recent fear and panic, it’s important to remember that sell-offs have multiple factors – not just one event like a virus.
Chart Observations:
- Candlestick patterns show the market’s attempts to bounce off key levels.
- Watching for breaks below the 89 EMA or significant support levels is crucial.
Portfolio Management
Now, let’s discuss portfolio management during this pullback. As we near the end of the year, consider evaluating your holdings and possibly creating some wash sales.
Action Steps:
- Pairing Down Positions: If you have stocks like Apple, Netflix, Microsoft, and Tesla, and typically hold 100 shares each, consider reducing them to 70 shares to take profits and increase cash flow.
- Evaluating New Candidates: Keep an eye on when stocks might offer better value to buy back in.
Trading Strategies
For day traders and swing traders, these conditions are a paradise due to increased volatility. However, trade with smaller positions due to the larger price swings.
Tips for Traders:
- Reduce Position Size: If you usually trade with $5,000, reduce it to $1,500 to manage the higher volatility.
- Monitor Key Levels: Watch for breaks above or below important moving averages and volume indicators.
Market Insights
Let’s look at a few stocks like Facebook, Zoom, Zillow, and Visa. These stocks are in different stages of pullback and recovery, and watching their patterns can provide insights.
Stock Examples:
- Facebook: Experiencing a rollover effect, with rejections at bounce attempts.
- Zoom and Zillow: Awaiting signs of turnaround; could take weeks.
- Visa: Observing potential turnaround points.
Closing Thoughts
Overall, this pullback is a cleansing process for the market. Even though it might seem significant, we’re only down around 4-5% from the highs. Corrections can last 6-8 weeks, while market crashes might extend to 1-1.5 years.
Final Advice
- Stay Cautious: Watch for market behavior near key support levels.
- Trim Positions: Adjust your holdings and keep cash ready for future opportunities.
- Monitor Volatility: Use tools like the VIX to gauge market sentiment.
Thank you for joining me today! We’ll continue to have these live sessions and introduce new content as we go along. Feel free to reach out with questions, and we’ll keep learning together week by week. Have a great day and happy trading!
