Watchlist 4th March 2022
The market looked prime to rip yesterday with an abundance of set ups, the daily’s were set up to A+ standards; we then opened and tanked. With geopolitical events, inflations fears etc spooking investors we’re experiencing a very choppy market.
With that said the markets still look good for a bounce until proven otherwise. SPY created a new higher low and a new higher high.
QQQ’s continues to hold the $340 level…
After the markets had closed the media was back to fear mongering once again. Stating that one of Europes biggest power stations in Ukraine was being targeted and the devistation could be 50x worse than chenobryl. As you can imagine the reaction was an aggressive sell off, causing SPY futures to crash 2% in under 60 minutes. Once the truth emerged the market quickly attempted to reclaim this move.
As a trader it’s important to maintain equilibrium, meaning we must remain balanced with no bias. As with anything in life a bias causes you to have confirmation bias. This is when you actively seek information to back up your theory and ignore information that goes against it.
Like right now I’m seeing 80-90% of people bearish, with many citing 1929 type crashes. The interesting thing about this is most of this talk started emerging at recent lows. After a 15% correction from highs and after blue chips are down 50%+.
Here’s the problem, you can be right but be wrong. You could be right about inflation, you could be right about the war, you could be right about valuations, you could be right about political issues. However if more people buy than sell we’re going higher regardless. It really is that simple.
So even if you’re right with your bias and the majority is wrong, you could still be the person to lose money. Think about it.
As I analyse the markets nothing has actually changed apart from another retest of key support levels. The thing I find most interesting is a lot of the move to the downside took place on low volume which indicates most people were not taking part in the selling activity.
The daily and weekly time frames are still intact and still holding. Even with a war taking place right now the market continues to hold these levels.
The amount of short positions across the market has now reached Covid-19 lows and this is a significant metric.
It means a tremendous amount of people are now bearish, it means a tremendous amount of people now feel we’re going lower. Fear is extremely high and quite frankly people are freaking out. This makes me extremely bullish. 90% of investors have an impeccable record of buying high and selling low. They then short the lows and cover at highs. I know this may sound harsh but it makes me laugh just writing this, like a lot.
So if we do now break higher all of those people are about to get even more emotional, refuse to believe the truth and like add to the short side. By doing so they add fuel to the fire as one by one they’re forced to cover and buy. They then chase the move higher pushing us into extension and we correct. Hence the Buy High Sell Low.
This morning I decided to go through a lot of the blue chips and top growth names to compare their revenues from March 2020 to now. The reason behind this is to highlight that a retest of Pre Covid highs actually makes little sense. The growth in which has taken place these past 24 months has in some instances actually outpaced the valuations of said companies.
The issue was it also brought up a lot of crap with it which helped fuel this huge correction. Whilst a lot of names still trade at crazy multiples many blue chips do not.
QCOM – 100% growth since March and the stock price has increased 72%
$AAPL – 105% Growth since March 2020 and the stock price has increased 103%
$GOOGL – 90% Growth since March 2020 and the stock price has increased 76%
$TSLA – 300% Growth since March 2020 and the stock price has increased 350%
$BBY – 100% Growth since March 2020 and the stock price has increased 21%
$FB – 95% Growth since March 2020 and the stock price has decreased 9%
The list goes on and on, as you can see that current valuations relative to income for even the highest growth stocks like Tesla are actually already at pre Covid-19 levels. This is a retest of pre covid levels. If we pull back further then the market is actually cheaper that pre covid levels on a relative basis.
You cannot argue against maths, it doesn’t lie.
If we breakout of these ranges to the upside I’ll buy the breakouts. If we pull back further I’m opening my long term brokerage and buying the dip.
P.S. Apologises in advance for spelling mistakes etc I can’t be bothered to check as I’d rather look for set ups.