With the broad market (S&P 500 or SPY) currently poised to gap down about 9% and QQQ not far behind, barring a sharp reversal before the close, the circuit breakers will likely kick in after the opening bell today. In order to protect at least partial profits, the suggested stop on the QQQ Active Short Swing/Trend trade will be lowered to 197.55, about 7% below the entry-level on the trade.
QQQ daily March 16th
T2 at 169.70 remains the next price target on the trade but not the final target, as I’m still allowing this to be a potential “runner” swing/trend trade while riding out the counter-trend rallies to allow for larger gains for the time being. As if now, the final target is still to be determined and if & when a decent case for a substantial counter-trend rally lasting more than just a day or so can be made, I may close the trade out and quite possibly to position long for the next counter-trend/bear market rally. While that could come very soon, possibly this week, as of now both the technicals (charts) & fundamental outlook for the stock market remain bearish.
I noticed a question in the comment section below the previous post listing some of the longer-term bear market targets for SPY & QQQ which I’ll answer here. The question was regarding whether this is a good time to tuck away a short trade on the stock market & ride out the counter-trend rallies in an attempt to profit from the next bear market as a trend trade. While I believe there is likely considerably more downside to the stock market in the coming months & possibly even years, I just cannot make an objective case to short any of the index ETFs at the levels where they are currently trading in the pre-market session.
As Friday’s late-session rally illustrates, with QQQ soaring 8% in the final 25 minutes of trading, the risk of being caught in an explosive short-covering rally, especially if that rally is sparked in the overnight futures trading session which leads to a large opening gap in the index ETFs (which could greatly exceed any well-placed stop-loss order) really skews the risk/reward for establishing new short positions on the stock market at this point to an unfavorable ratio IMO.
For those that shorted QQQ when this active trade was added back on March 3rd, about 21% above where QQQ is currently trading in the pre-market session, or even those that shorted the rip back into solid resistance before the close on Friday, adding to an existing position here (after the initial trading halt which is likely to be triggered at the open today once the first circuit breaker kicks in), is a little better as one’s average cost on the trade would be much lower than a new short position started here. However, the optimal & most objective entries or add-ons to swing short positions come on counter-trend rallies back to resistance.
Once the market opens for trading today, even if that means waiting out the first & second circuit breakers, if hit (the 3rd breaker would shut the market down for the rest of the day), I’ll assess the charts & let you know my thoughts. The technicals (charts) have been & will continue to be our best guide to navigating the large zigs & zags of this very impulsive bear market with a rapidly changing fundamental landscape although both technicals & fundamentals should be factored into one’s analysis & expectations of where the market might be headed going forward.
As far as the rapidly changing fundamentals, in addition to the obvious ongoing impact of COVID-19 on the US & global economy, we have the recent extreme measures from the Fed & other global central banks and almost certainly, more extreme measures to support global financial markets to come as potential net positives for the market (although how much, if any, of an effect those measures will have are yet to be seen) coupled with what I fear as some potentially serious negative impacts of an extreme & sudden plunge in the stock market that I have little to no doubt has blindsided many institutional investors such as hedge funds, banks, pension funds, etc.. As such, I don’t think it is so much a matter of… “Will we hear about any hedge funds or potentially important financial institutions such as Deutsche Bank, or maybe worse, one that nobody saw coming, maybe a big brokerage firm, blowing up?” but more so when we are going to start to hear about the direct & potentially irreparable damage that this plunge in the stock market has caused, other than the obvious which is the vicious cycle that a 30% plunge (so far, as of this morning) in the stock market will do to the economy as consumer confidence and hence, consumer spending (which accounts for 2/3rds of GDP) will have on the economy & stock market going forward.