Buy the Dips, Sell the Rips!

I like the stairstep action we’re seeing in the markets right now…

The powerful pattern of higher relative highs and higher lows continues week after week. As I always say, price is paramount! If you’re still caught up in the negative pandemic headlines, you’re missing out on countless profitable trading opportunities.

One thing is certain: we’re in a buy-the-dips market right now. Yes, we’ll see some profit taking after some of these strong earnings moves. But I like the momentum in the markets right now. You can set yourself up for gains simply by using these pullbacks as buying opportunities for new trades.

Following an extended move off the March lows, you’ll see much better risk-reward scenarios if you get long during these pullback moves. If you look at all the bullish flag patterns that have materialized over the past months, you’ll get the message: Buy the dips, sell the rips!

Now the S&P 500 is setting up for a move to 3,200 following last weeks’ profit-taking pullback — that’s the distance of the drop from last week’s top.

spx chart

Again, the pattern of higher relative highs and higher relative lows is very powerful. We can lean on the uptrend line on a weekly basis as super support.

Remember, we aren’t doing anything fancy. Just follow the price push higher supported by the buckets and buckets of Federal funds to stabilize markets…

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

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Chart of the Day: Tech Trounces the Market

Greg GuenthnerEarlier this week, we took a closer look at the strength in the technology sector, specifically the Nasdaq Composite’s move back toward its March highs.

Tech’s impressive outperformance has continued thanks to several strong earnings reports, helping to push the Nasdaq’s weekly gain close to 5%. Leaders lead — that means the usual suspects of this comeback rally continue to power the move.

The popular stay-at-home stocks are no exception. Stocks like Peloton Interactive Inc. (NASDAQ:PTON) and Zoom Video Communications (NASDAQ:ZM) are posting impressive moves this week. Other quarantine necessities also continue to attract more than their fair share of speculators. In fact, one of the plays we’ve tracked in these pages is now on the cusp of a major breakout.

Slack Technologies Inc. (NYSE:WORK) took its time setting up for this move, shaking out some weak hands last month before once again setting up for a clean break of the $30 level.

WORK chart

The $30 line has been a brick wall for this stock going back to early February.

As I noted last month, WORK is a relatively new stock that has experienced some serious volatility so far this year. Patience is key when dealing with a trade like this one. You have to be ready for the occasional fake out if you’re not willing to wait for the clean break.

Trading Tip of the Day

Famed economist Milton Friedman famously noted that the stock market and the economy are two very different things.

This bit of wisdom rings especially true today as we continue to endure the economic impact of the coronavirus shutdowns. We’re constantly bombarded by terrifying data during this pandemic. For instance, we just learned that 1 in 5 Americans has filed for unemployment since mid-March. The economy is certainly reeling right now. But the markets? They continue to recover from their lows.

This disconnect can be incredibly frustrating for investors, who often find stocks “detached” from reality. It helps to remember that the stock market is forward-looking. Markets are more likely to react to changes in future expectations than last month’s employment numbers. Remember this the next time you see a big market rally following bad economic news.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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