2022-07-19

The Running of the Bears Begins

It felt like a big rally was building because even into late day trading yesterday, bulls ran scared from every rally and bear poured in. Many days would see a rally that collapsed in the afternoon. Bears were confident the market would turn lower and bulls fearful they were right. That's how a day like today eventually arrives, completing a month-long base.

Once ES clears 3950, the target off the base is 4250 area. Another 8 percent rally ahead.

NQ has a target of 10 percent off the base, taking it to around 13500. That takes it into spitting distance of clearing the consolidation zone in late April and early May. It would only need another 3 percent from there to tag the 25 percent rally line I drew on the chart.
Bonds aren't cooperating yet, but they might struggle until the Fed meeting next week. This is my biggest loser in the portfolio.
I bought puts on $USO when CL was at $99 and got out before that surge, then shorted again when it was in that consolidation pattern. I think there's only risk up to around $102 or $103 from here.
Stocks can get squeezed for no reason at all except the prices rises, but my assumption is that oil will fall and bonds will rally, and that will provide some "fundamental" support for a rally. I also thought earnings might be less bad. Netflix delivered on that score after hours. It beat on earnings, missed on revenue and beat on subscribers (losing less that forecast). I don't trust AH gains, but Netflix is up 7 percent after hours. If Meta delivered that same jump, it would translate into a 1.25 percent rally in XLC. Netflix's after hours gain is included on this chart:
If XLC breaks out of the same base formed on ES and NQ, the target is near $63 per share. If Nasdaq can rally 10 percent though, I think XLC can go a bit further.
Finally, another fundamental is Europe's energy disaster. I didn't think Russia who shut off the gas because it makes them into the bad guys. Why turn it off if Germany is shooting itself in the foot? Today, Gazprom did a test to turn on the gas. German stocks rallied strongly. The Germany ETF gained 4.64 percent. I have some August calls at $24 strike since I thought Russia would not turn off the gas, and that the euro would bounce a little. EWG fell nearly 40 percent from January high and has plenty of room to dead cat bounce before. The DAX has about 3 percent and 6 percent to rally before filling the gaps from June. Whatever percent the EURUSD rallies, tack that on.

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