TLDR: The indexes are flashing red and we stay 100% cash until the QQQ puts in three lows above the 21-day. Six names with relative strength stay on the watchlist for when the market confirms.
Welcome back to the Weekly Trading Plan. Here’s what we’re covering:
Market Pulse. Three red flags on the indexes and the confirmation we need before looking at stocks.
Biotech and healthcare.
Software and internet.
AI-related names.
Honorable Mentions. A longer list of names worth watching.
Closing Thought. Confirmation and protecting confidence.
How we trade these names. This is not financial advice. Be sure to do your own research. Managing risk should always be your priority, and that means never blindly buying into names you see on a newsletter. Build your system and follow your rules.
Market Pulse
The Russell 2000 has been leading the charge lower. Small caps are the most sensitive to rates and they have been diverging from the Nasdaq. The bull case was that they would catch up to the big caps. Price action last week showed the opposite. Big caps are chasing the small caps down.
We are now three days with the high of the day below the 200-day moving average. Closing below it is already negative. Having the high below it for three straight days is more so. This is red flag number one. We want to get back above the 200-day as step one.
SPY broke out to new highs in mid-August and then chopped sideways in what looked like a cup. Friday was a material breakdown. It found resistance at a declining 10-day moving average, reversed lower, and closed below the 50-day. Another red flag. We want it back over the 50-day before opening the door to stocks.
The QQQ has been the strongest index recently. Thursday, October 15th, it put in an upside reversal and held the 50-day. Friday broke that expectation. It undercut Thursday’s low, closed below it, and more importantly closed below the 50-day with the high of the day also below the 50-day. The 10-day, 21-day, and 50-day are all sloping down. This is the primary index we are looking at and it is very negative.
To start looking at stocks we need the QQQ back above the 21-day moving average with at least three days of lows above it. That confirms a short-term uptrend and is the green light. Until then the stock side takes a back seat. There will be big rally days in a market like this, but the job this week is to observe which way the averages are trending. The first trade is on the market itself.
I am 100% in cash after taking profits on the last few names. Completely open to getting back involved if the opportunity opens.
$MRNA, Moderna WATCHING
Model book stock, nothing wrong, watching 21-day support if the market turns.
Fundamentals
Non-GAAP EPS: +8% last quarter. Sales: +2%. Return on equity: -39%. The story is the melanoma vaccine.
Technicals
Incredible run and model book stock. Friday was down about 8% and traded below the 10-day but closed above it and held fine. In the grand scheme it has done nothing wrong. Earnings in 19 days.
Action
One of the strongest relative strength names in the market. If the market shapes up this is a good one to buy off support. Pullbacks to the 21-day are the first level we are looking at.