The weakness that persists in the Nasdaq is spilling over into the S&P this week, as seven (7) of the highest weighted stocks in the S&P comprise more than 23% of its weighting. These growth stocks could exascerbate more selling if weakness extends beyond today.
FB, AAPL, AMZN, MSFT, NFLX, NVDA and TSLA are in focus, reversing Fridays gains.
In addition, the “put heavy” flows in these “top growth stocks” could spark a quicker than expected drop in the S&P and the NDX. Brent at Spotgamma also highlighted some “large call spread activity in the VIX yesterday, which indicates further market hedging.
QQQ Daily Chart
The NASDAQ and QQQ reversed Fridays gains, printing a bearish candle similar to the last test of the 50d in late February. The risk is elevated in tech/growth and substaintially higher now that dealers are selling futures with every increase in long put positions.
SQQQ – Click to enlarge
PSQ – Click to enlarge
SPY 60 Minute Chart
Markets are depressed again this morning, so we’ll look to SQQQ and PSQ for a hedge. Price action in these hedge positions is signaling a break out, mirroring the weakness in the QQQ chart above. We will wait for a bounce that fails for entry.
Given the weakness now hitting the SPX and SPY, we anticipate a quick test of 4100.
Markets at this level are severely oversold, so any bounce would be a better opportunity for hedges should this scenario materialize.
Click the chart to enlarge – SPY 60min.
Finally, don’t panic. Remember cash is a position as well.
Since we are more interested in preserving capital, this would be our first option. It’s also the reason we have been raising cash and reducing our open trading positions over the last couple of weeks.
Join us today in the trading room for our LIVESTREAM broadcast during market hours, as we navigate the current environment. Watch, listen, and trade from 9:20 AM to 4:15 PM Monday through Friday.
Happy Trading,
Vinny
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