“V-Bottom” Frustrates “Buy the Dip” Crowd

Power Trading and Markets – February 16, 2020

“V-Bottom” Frustrates “Buy the Dip” Crowd

Welcome everyone to Yellow Tunnel. Every week we set our sights on improving members’ trading psychology, awareness and trading skills that generate consistent profits, resulting in aggressive and positive trading profits. I and my team strive to provide the right set of tools and trade discipline the lead to real financial success within our trading portfolios while also providing for a rewarding experience.

CURRENT TRADING LANDSCAPE

The market continued to fluctuate between gains and losses late last week, as the news about the Coronavirus has resurfaced. I expect market volatility to persist. I would not chase the market at these levels and I am waiting for SPY to retest the $330 level. Based on the stock forecast toolbox model, SPY might reach a $340 level on the upside. I expect the market to trade between $330 and $340 levels.

I only expect shallow pullbacks starting next week. Please follow key support levels on iShares 20-yr Treasury Bond ETF (TLT) of $142, SPDR Gold Shares ETF (GLD) of $145, and U.S Dollar Index (DXY) at $98. As long as these support levels are intact, the market is prone to shallow pullbacks.  

I remain bullish on the pullbacks, as long as the SPY is above $330 level.  Aggressive short-term buyers should consider buying near $330.

SECTOR SPOTLIGHT

 This week’s focus is back on the semiconductor sector where one chip or chip-equipment company after another is hitting the earnings ball out of the park – the latest being Nvidia Inc. (NVDA) – trading up 7.5% in Friday’s session after a blowout quarter citing strong demand from data centers. This was followed by Applied Materials (AMAT) which saw strong demand across all markets, which took its stock to new all-time highs.

There are some secular trends unfolding within the semi space that has investors very excited about the future prospects for sales and earnings. Everything from 5G, Internet of Things (IoT), big data, cloud computing, smartphone, autonomous driving, robotics, AI, augmented reality, virtual reality and advanced computing are all driving forces that have the sector in a powerful upside trend.

The most widely traded vehicle in the sector is the VanEck Vectors Semiconductors ETF (SMH) that includes all the heavyweight names that make for a great way to play the sector from a broad trading perspective. This is one of the only ETFs that trades in real tight correlation with the performance of the underlying components, which with the exception of Texas Instruments (TXN) are all excellent holdings.

 Looking at the technical picture, shares of SMH exploding out of a two-month trading range and showing very bullish momentum with all four moving averages turning sharply higher of late, implying more upside with minimal downside risk.