Market Outlook 08/31/2022
Recap On Tuesdays Market Action:
Good evening everyone, hope you all had a nice Tuesday. The major indices gapped up and opened higher but couldn’t hold onto those gains and quickly reversed to close lower. The Fed speech on Friday continued to weigh on the markets as it was reiterated that inflation is the key focus of the Fed. What was once a healthy market rally a week and a half ago has quickly disintegrated.
SPY broke through the 50 day EMA early this morning and stayed below it for the remainder of the trading day. There were a few week attempts to regain the 50 day EMA but nothing seemed to stick. With heavier volume today than yesterday and a move below a key support zone the picture for a quick rebound is not to bright. We may see SPY consolidate around the 50 day EMA or we may see a continuation to the support trendline at around $390.00.
QQQ has a similar outlook to SPY, with the difference being that QQQ broke decisively through the 50 day EMA and is now resting on the support trendline. This may be the place where we can see QQQ bounce or it may be where we start the next real leg down. If QQQ where to bounce it would have been nice to see large volume and buyers step in to push the price up and close above the 50 day EMA today. However, sellers have continued to overpower buyers and push QQQ down. With SPY still a bit away from its own support trendline, we may see QQQ continue to fall as the broader market does so.
Recap on recent positions:
I am currently short the market and am holding QID, a 2x inverse ETF of QQQ. I have a basis price of $21.83, so there is currently a small profit cushion. I opened this position because I liked how the markets pushed below yesterdays lows and the 50 day EMA and stayed below for the remainder of the trading day. That being said I am also prepared to quickly exit this position if we see a strong bounce. Remember, forecasts and opinions do not make money in the market. I chose to short QQQ instead of SPY because QQQ is the weaker of the two indices.
Potential Setups:
I am only looking to add to QID in the coming days. A lot of damage has been done in the past weeks and many stocks have pulled back from their potential entry points. That does not mean there are no good stocks to buy, there are still some out there but it is important to scale your position according when the market is not acting strong.
Bringing everything together:
The markets are currently at their weakest point since late July. It is important to be quick in entering and exiting your positions if they begin to turn against you. Now is not the time for aggressive buys or risky setups. If you have a position with a profit do not let it turn into a loss and be extremely careful if you are considering adding to the position. Overall, unless you see an extremely clean setup it is best to exercise caution in the markets now, and remember just because the market is open for business, doesn’t mean we have to do business.
