Hey Market Pilot,
Welcome back to the final stretch of the year. It was certainly a turbulent few weeks leading up to the Christmas holiday, especially with that gap down on December 20. That gap down appeared to be what set the hook for a short-covering rally and the Santa Rally everyone was wondering about.
That gap down really put into question the direction of the market and based on the nearly vertical move of the S&P 500 (SPY), it seems a lot of traders had to change their minds about the bearish stance on the index. I would not blame anyone who was thinking short, since market breadth has been extremely poor and we know that only a small handful of stocks are holding the market up. The indexes still seem to be masking what is really going on out there as it is slim pickings for good bullish setups.
As it turns out, the SPY did a double bottom and maintained the weekly 21 exponential moving average (EMA) as support. The second move off the weekly 21 EMA was so vertical that even the indicators I use were lagging and didn’t give me the confidence I wanted in order to put on trades going into the Christmas weekend.
Tickers I look at are getting better, but a lot of carnage happened going into December that I mostly see them as bounces while they work on regaining their footing. The reason for the carnage was because a lot of important news and economic information, along with Omicron, came out in rapid succession. Yes, the SPY has recovered and the Nasdaq (QQQ) is right behind, but the Russell 2000 ETF (IWM) and so many individual names are struggling.
I haven’t found the environment to be easy despite the indexes making solid moves, so try to find the best setups you can, and don’t be surprised if you don’t find a lot.
Your Profit Pilot, TG