QQQ/GOOGL Buy Technology -- Stock Market Is Oversold
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Selling pressure further accelerated this week after global central banks also raised short-term rates in lockstep with the Federal Reserve’s decision to bump the Fed Funds Rate by 75 basis points. Stocks initially took the news well, seeing the Fed as being proactive, but negative sentiment swept through the balance of the week as the notion of the economy entering a recession has taken a firm hold on investor sentiment.
In light of the downbeat mood, energy prices and bond yields have both declined, thereby providing potential building blocks for a market bottom to begin forming at current levels. Markets are pretty swift about self-correcting and when the pendulum swings quickly in the direction of the recession camp, then it is thought that inflation will invariably cool in the second half of the year.
The bearishness has gotten pretty extreme with the Nasdaq now down nearly 35% from the high where the Invesco QQQ Trust (QQQ) is sitting just above its 200-week moving average right around $261 or about 10 points below where the QQQ trades Friday.
While the intermediate-term trend is down, there is a real opportunity to profit from short-term oversold rallies, but knowing which sectors and stocks to work with is crucial in maximizing bear market rallies.
To this point, I can’t emphasize how vital it is for blog readers and members of the Yellow Tunnel community to keep referring to our Live Trading Room so as to maintain a close tie of how our AI platform is navigating us in and out of select trades. It’s FREE and I want highly encourage everyone to sign up to the Live Trading Room and keep checking in throughout the trading day.
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CURRENT TRADING LANDSCAPE
The $SPY closed lower 3.3%, at $366, below the key long-term support - $380. The value/reflationary ($VTV) closed lower 2.7%, at $128, breaking below the 52-week low. The technology sector ($QQQ) closed lower 4.0%, at $271, trading below the 52 weeks low.
The $DXY closed lower, near the $104 level, trading below the December 2016 high. The $TLT closed higher 0.8%, at $1101, and facing the key long-term support. The ten-year yield closed lower at 3.2%. The $VIX closed higher, near the 33 level.
The $SPY short-term support level is at $364 followed by $350. The SPY overhead resistance is at $383 and then $396.
I would be a seller in the rally and have a NEUTRAL portfolio at this time. Short-term the market is oversold and undergoing the bottoming process.
"BUY" signal based on the Aggressive Power Trader Portfolio for tomorrow is at the $354 level using SPY and "SELL" signal is at $383 for short-term traders.
If you are trading options consider selling premium with September and October expiration dates.
Based on our models, the market (SPY) will trade in the range between $350 and $440 for the next 2-8 weeks.
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Signals have historically averaged over 85% accuracy in my live trading since inception. Sometimes we hold position 2-5 days by using options (selling OTM Calls and Puts spread) and targeting 1% target gain and 1% stop loss using stock price. The green color should be interpreted as a bullish signal and the red as a bearish signal.
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As a reminder, consider buying near the "BUY" level with a "10 days prediction" higher than the close price. In our live trading room, I usually hold a position for 1-2 days.
I allocate less than 5% of my portfolio if the position is being held overnight. On average, less than 1% of the portfolio should be at risk if you own a position for less than one day.
I enter a position at the predicted LOW (BUY) price or yesterday's close price. My stop loss is 1% and my target gain is 1% of the stock price. I target 75% accuracy using these signals.
Few subscribers asked about Options trading using the signals provided. Please review live trading room recordings. I often sell OTM credit put spread using weekly options and collect 0.5% using stock price. For example, if the stock is trading at $100, I would sell an OTM Put (strike less than 100) with an option BID price close to $0.5.
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SECTOR SPOTLIGHT
As noted in my opening comments, the big-cap technology stocks led the market to new highs and have summarily been the weight on the market’s decline. Valuations have been radically adjusted lower to where many of the leading tech stocks now trade at historically low P/E ratios that argue well for traders to consider getting long.
Shares of the Invesco QQQ Trust (QQQ) make for an ideal trade to profit from an extreme oversold condition. The QQQ represents the Nasdaq 100 and is dominated by technology stocks that comprise roughly 51% of total assets.
When we apply our proprietary AI-powered Seasonal Chart to QQQ, we get a very bullish “Higher” reading that confirms our technical conviction for this trade setup.
TRADE OF THE WEEK
With the top ten holdings in QQQ, both classes of Alphabet Inc. (GOOG) account for almost 8% of assets, ranking it third behind Apple Inc. (AAPL) and Microsoft Corp. (MSFT). There are three reasons why GOOG makes for an attractive trade this week.
First, the company posted a very solid quarter and provided good sales and profit guidance for the current quarter. Of the 38 analysts that cover GOOG on YahooFinance.com, the average earnings estimate for 2022 is $112 per share which is forecast to grow by 18% to $132 per share in 2023. Trading at 19 times this year’s earnings estimate and 16 times next year, the stock is cheap relative to its growth.
Secondly, the stock is looking like it is forming a quintessential double-bottom pattern on the that where there is key support at $2,000 going back to February 2021. Short of another pandemic, I don’t see the stock trading back down to its 200-week moving average when factoring in its cheap valuation and robust earnings outlook.
Lastly, when we apply the Seasonal Chart, to GOOG, we get a “Higher” probability reading for the next 20 trading days off this reaction low.
This is where our AI tools are so crucial in determining precise entry and exit points. I’ll be looking to trade GOOG this week on this pullback that will be one trade not to miss out on. It is one of the really great stocks to trade from the long side when short-term rallies are in the offing, even during protracted downtrends such as the present.
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