Vlad’s Triage Trade
Vlad’s Triage Trade
Welcome, everyone to another big week at Yellow Tunnel, and what a week it’s been for traders of all stripes. It’s times such as these that test the nerves of even the most seasoned traders and is when more heads than one help to smooth out daily performance that requires precision timing and an extra measure of trader discipline.
Our team is fully committed to improving members’ trading psychology, awareness and trading skills that generate aggressive trading strategies, resulting in a high percentage of consistent profits. We are constantly pursuing to deliver the right set of tools and trade discipline that lead to real financial success within our trading portfolios while also providing for a rewarding experience.
CURRENT TRADING LANDSCAPE
The markets continued the sell-off last week as spread of Coronavirus has intensified. Futures were halted twice on Monday and Thursday, as main indexes dropped more than 7%, triggering circuit breakers.
The question is whether or not this is the end of the bull cycle or just a temporary 10-30% correction. The sudden 20% drop in oil prices and 14% drop in equity market indicate that the $273 level on SPY failed to hold and that the market will drop close to the next support level, near December 2018 low (230-240). This will take the market drop close to 30%, where it would argue well for a bottom to start to form.
I expect the market volatility and the three percent daily market moves to persist. At this point, I do not believe we have set the bottom and I would wait for 2 days for markets to make higher highs and higher lows before the bottom can be established.
The market (SPY) will trade in the range between $230 and $315 levels for the next 4 weeks. I believe the market will retest $240 level in the next 1-2 weeks, and hopefully, Thursday’s low of $247.68 was a floor. The Fed launched a $1.5 trillion repo operation that will infuse the market with liquidity for the next two weeks while Congress is working on a stimulus package to boost assistance to small businesses and consumers.
Please follow key support levels on TLT ($142), GLD ($145). As long as these support levels are intact, the market is prone to pullbacks .
I updated the Aggressive Power Trader list and added VXX as market participants will continue to look for ways to hedge their positions. Please watch the Live Trading Room recording where I reviewed SPY trade.
SECTOR SPOTLIGHT
There is a tremendous emphasis being placed on the medical community to deliver a vaccine to combat the COVID-19 virus. President Trump huddled with CEOs of the leading pharmaceutical companies to address the desperate need for whatever therapies, testing kits and essential supplies can be fast-tracked to fill the immediate demands to fight and eradicate the virus.
With Joe Biden starting to pull away from Bernie Sanders in the Democratic race for the Presidential nominee, there is definitely renewed confidence that the medical insurance companies, drug companies, medical device companies and medical supply companies will be able to hold pricing and continue to grow earnings at an attractive pace.
Knowing the economy is going to move into a period of slower growth, investors will be rotating capital into defensive asset classes that carry attractive valuations and good dividend yields. Healthcare has historically been a sector that outperforms in such a scenario because people can’t do without proper healthcare. Plain and simple.
The best way to play the sector as a whole is by trading shares of the Health Care Select Sector SPDR Fund (XLV) – which is an excellent way to approach investing in this sector without having to exercise precision stock picking. Companies in this sector fund primarily include health care equipment and supplies, health care providers and services, biotechnology and pharmaceutical industries.
The top ten holdings for XLV listed below make up just over 50.73% of the fund’s total assets. Depending on the fundamental and technical analysis, the fund managers will actively adjust individual weightings and which stocks to buy and sell. As is the case with most ETFs, this is not a static portfolio.
Looking at how shares of XLV currently trade within the current market correction, shares of XLV topped out at $105 and now trade at $87 and back down to where a strong 5-year support level is drawing some initial interest. So, this $80-$85 level has a lot of technical credibility, especially given how the market is looking for recession-proof asset classes to rotate into.
Applying my Tradespoon AI tools to XLV, we can see out the very short-term (10-days) is still showing downside risk, but 20-30 days out, my indicators are implying shares of XLV will rally, and therefore deserve putting on our watchlist for a bullish trade.