Articles

Everyone making money everywhere, pretty much throw some cash into the market and it seems to just want to move higher.  More stimulus expected, more QE and potentially an infrastructure bill is all pointing to higher equity prices, but how much longer, and at what point to we get a pullback?

That is the obvious question there simply is no answer to.  Nobody knows when or where a pullback will occur, but history proves one will eventually happen so better to be prepared than reacting when caught off guard.

A few items on the calendar this week that can have an effect on the market:

  1. Georgia Senate Race tomorrow
  2. German Unemployment Rate Tomorrow
  3. US ISM data tomorrow  PMI manufacturing data today
  4. FOMC Minutes realease Wedesday
  5. But the big one is Friday when we get NFP and Unemployment Data

There are a lot of things politically and economically that can throw a wrench in the markets.

BTC Weekly

BTCUSD

Appears to be some profit taking in the 30k area which is not unexpected as the broader target area was between 24-32k.  The question of course is how far do we pullback and where are we looking to buy?

Strong markets do not necessarily have to pullback to the magical 61.8% Fibb levels, this is being overly hopeful in my opinion and unlikely to see a 50% pullback overall in the near term.

However it is reasonable to see a pullback into the mid to low 20k region before making another leg higher.  We are likely completing the 3rd leg of the broader 5th wave market cycle.

The easiest wave to identify is wave 4’s as they come after what is normally the strongest wave, wave 3, and it is not uncommon for them to pullback only 25-40% of the overall cycle (wave 1-3).

We are looking to position for a final wave 5 leg but it is still a little early and there is no clear setup quite yet.  We want to see at least a week or two of consolidation, via a pullback to 24k and some sideways action or other similar chart pattern.

Make no mistake there is generally a lot of money waiting to get in during this phase of the market.  Those who missed the run up from 4k last year, are now chomping at the bit to get in.

For this reason we have chosen to hold our Bitcoin position and trim a couple alts to build up cash.  The reason is a pullback to 27k is all we might get before the next leg higher.

As previously mentioned, a push to the upper target area, will likely result in a more shallow pullback then most are expecting.  This is why we do not attempt to time the market with our entire portfolio, you can exit and wait for a major pullback during this phase of the cycle that never comes.

IF it does come we have some cash to put to work, if it does not evolve and we simply push higher, we are still overweight the market and will get the majority of the move higher.

Bitcoin Daily

BTC Daily

Key levels in the short term are 30k for support and 34k as resistance.  A break below 30k looking for a retest of 27k in the near term and a break out of 34k looking for 37,400 to trade.

This would be for time frames shorter than what would be a typical swing trade.  IF we do pullback to 27k the question is do we get a more complex consolidation or do we setup for a “V” type bounce to 38k or potentially higher?

Do not know, only time will tell, but we will be watching price action for clues either way and looking specifically for swing and position trades for the next leg of the market.

Ethereum

ETHUSD

What a two day rally with Ethereum.  Ethereum bag holders must be happy, and though I am not trimming out any Bitcoin here, I sure would be taking something off the table with Ethereum.

Though the initial 800-900 target area is now initial support, the main support level is down around 520-640.  That is where I am interested in buying or adding to my position, not up here.

Maybe we don’t get there, fine, but if Bitcoin pulls back, the pain will be more felt in alts, and even if Bitcoin trades sideways for a few weeks, the alt market is likely to take a hit.

Alts rally hard when FOMO is abound, and this is a clear sign of FOMO.  IMO best to wait for better prices, will consider adding in the initial support area, but probabilities favor a pullback into the 520-640 support zone.

IF Ethereum takes out 440, not interested at this point.  There is no reason it should be trading that low with the market entering a final bull cycle.

S&P

S&P

The grind higher continues and the next major level of importance is 3800.  The market is simply in a vulnerable area, though bulls are still clearly in control.  Any dips are being bought up, the market is grinding higher, but the trend is not overly bullish and momentum is not really high here.  Just a slow grind higher.

Often this is due to rotation, and the risk here is the rotation ends, there are no significant buyers left to buy and we start a broader pullback.  This is not an area to be 100% long the market, want to have some cash on the sidelines for when a broader shakeout happens, and it will happen, the question is when?

Looking for a broader pullback over the next couple of months.  Short of a catalyst that sends the market into turmoil we are likely to see a series of pullbacks, attempts to buy the dip, before giving away to selling pressure.

Our target for being aggressively buying stocks is in the 3000-3150 area.  Do not mind taking some shorter term trades in the interim, but want to have capital to buy a broader pullback.

Gold

XAUUSD

Gold starting to show some signs that a bottom may be in play with a series of higher lows and now a decisive higher high, straight through the resistance zone.

We are open to a long trade on any consolidation or pullback off a higher low, but we have taking small bites in miners over the past month slowly stepping into a position out of the lows.

We look to add to that position in the near term and whether at lower or higher prices we are not going to chase a green candle.  This is a perfect example of chasing a move, jumping in on a green candle which is high risk.  Best to wait for a continuation or minor pullback, even if it means we are buying at higher prices.

The 1900 level is now support and that is the ideal area to look for trades and or to add another position.  Interim target area is 1950-1980.  Over the next 12 – 18 months looking for 2200-2500 to trade, so this is what we are positioning for.

Because our time frame is extended for Gold we  are in no hurry to rush in.  We will continue to take small bites as the market provides opportunities not force a trade or add a position just because of one green candle.  Moves higher, we are already in, pulls back we can add to our position.

Dollar Index

DXY

Even with lockdowns in Europe, which is the major weighting in the DXY Index, the Dollar continues to get hammered.  Not looking good and if 88.0 is taken out, the broader support level is down around 80.0.

Further signs that the stock market is not finished running.  During times of turbulence, the Dollar will strengthen, still no signs of that happening here, and currently we are long the Euro.

As long as the market remains strong look for continued weakness in the US Dollar.

 

AMD

AMD

AMD was our trade of the week a couple weeks ago, never triggered and has really gone nowhere, but I am liking it for a long this week.  If the market is to continue higher the Semi-Conductors should put in a final rally as well.

Looking for a position trade for 102 and 110 with a stop slightly below the 89.0 level.  Key levels for AMD are 94.50 for a bullish breakout, and 87.50 for a pullback into the 70’s.

All in all I like the stock, like the position, like the setup, one we are looking at adding this week.

Regeneron

REGN

Still liking Bio-techs in general and Regeneron is one we have been adding to but may take another position off this minor double bottom.  Lots of room to run here, 580-600 is very tradeable over the next 3-6 months.

This is a quality stock with a solid pipeline and so we do not mind waiting for the rally to begin.  Overall like the position, will continue to add into weakness and or on a break of 510.

Thermo Fisher

Thermo Fisher Scientific

Sticking with the bio-tech play, like Thermo Fisher for a broader move back into the 500’s.  Solid support between 440 and 480 with signs of buyers stepping in into any selling pressure.

One we are in, and will be looking to add to our current position.

3M

MMM

3M is also on our radar for a portfolio add.  Solid Dividend King here, definitely an infrastructure play and reasonable to re-visit the 230-250 area over the next 12 months.

One on our radar for an add.  Looking for stocks that have the potential of 25-35% gains over the course of the next year, and that is what our focus is on.

Summary

Have some patience, let the market cycle and be prepared to buy a pullback.  Regardless of the depth of the pullback, markets in the long term trend higher.  Want to put some capital to work during broader pullbacks and build up some cash into strong rallies.

The question you should be asking yourself is are we closer to the top or to the bottom?  Sure markets can go higher, bull rallies can extend for a period of time, especially with so much cash infusion into the market, but eventually the pied piper comes a calling.

This is a Free Member article. To receive email notifications when new articles are available, click here.