Tough call this week, but we call a Quad3
We are hedged!
Reasons for the Quad 3 call:
Copper, Aluminum and Oil + XLE broke to bullish Quad trend (one week relative strength high, price above the 20 week ma + relative strength above the 20 week moving average of relative strength (not price!). The best breakouts of the last week came from this Quad 3 pocket of the market.
Also, QQQ and XLK looks very, very vulnerable here and the tech rally simply is very long in the tooth. The relative strength line of QQQ has two lower highs now.
We had three big distribution weeks on the SPY and on the QQQs in the last 5 weeks!
CANSLIM Traders that I follow raise cash hand over fist or are hedged.
This time Biotech got the message and pulls back with the market (at least the mid and big cap biotech).
Earnings reactions get worse (ADBE, JBL!).
+ earnings season is over, which is followed by a 6-week window of weakness: macro news will take over, we had two bad CPI prints in a row and the expectations for the FED Meeting are sky high since the verbal pivot in Q4 last year.
This is not a call for a crash but a possible correction of 5-10% on the SPY.
I raised 20% cash (during today Friday) and I am 30% short on the IWM for the time being.
I am not overly worried, but this is a good spot for a hedge on IWM. It lagged the whole time and showed some strength at the end of this move to suck in traders who believe IWM trends well (it does not, almost no growth in it!).
Will Quad 3 persist? I have no idea, we are nearcasting not forecasting based on network momentum and that is in the Quad 3 bucket right now.
So yes, we had a nice run since our call on November 3rd to get long and one whipsaw quad 3 call in between (beginning of Jan). We had a very, very good run: this means, we could see more whipsaws now (flip flops between quads). And I am more than ready to protect profits hyper aggressively.
The best thing that could happen here is a nice 10% drawdown on the SPY in a way that nobody wants to buy the dip (e.g. much more damage under the hood!). That is where the big money is!
If we then get a Quad 1-2 again, we press, until then I lean to the consolidation / pullback side and will play breakouts on select Quad 3 stocks with not too much position size.
All right, have a great weekend.
All the best and best regards.
Andreas
The information on from Andreas Himmelreich / QuantStrike and this video / blog is for information and discussion purposes only. It does not constitute a recommendation to purchase or sell any financial instruments or other products. Investment decisions should not be made with this video / blog, and one should consider the investment objectives or financial situation of any person or institution.
Investors should obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisers about the risks and merits of any transaction before making an investment decision, and only make such decisions based on the investor’s own objectives, experience, and resources.
The information from Andreas Himmelreich / QuantStrike and this video / blog is based on generally available and paid information and, although obtained from sources believed to be reliable, its accuracy and completeness cannot be assured, and such information may be incomplete or condensed. All performance results are hypothetical and the result of back testing only. Out-of-sample performance may be different. No claim is made about future performance.
Investments in financial instruments or other products carry significant risk, including the possible total loss of the principal amount invested. Andreas Himmelreich / QuantStrike and this video / blog do not purport to identify all the risks or material considerations which may be associated with entering any transaction. Andreas Himmelreich / QuantStrike and this video / blog accepts no liability for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained in or derived from Andreas Himmelreich / QuantStrike and this video / blog.