Which Tech Stocks to Short and Which FX Pairs to Trade Right Now
In this week's Report, I'll touch on a number of themes I see emerging in the markets.
That includes a long look at what's going on in the NASDAQ and growth stocks and what I now believe is a paradigm shift in the Japanese yen.
A quick note on the latter point: Japanese yet trading pairs have been strong for decades. But it looks like the Japanese yen is weakening.
I also think the New Zealand dollar is back to its position as one of the weakest currencies on the board, and therefore I really like GBPNZD (the British pound versus New Zealand dollar) as a long position. I also like NZDCAD (the New Zealand dollar versus the Canadian dollar) as a short -- the Canadian dollar is also starting to strengthen.
I’m going to cover all these things, but I’ll start by looking at the US stock market.
In this chart, I'm looking at the S&P500 weekly chart. Last week, the S&P closed very close to its all-time high.
We have the same situation with DJIA (the Dow Jones industrials) which are also very strong and closed near their all-time high.
This represents a rotation into cyclical or industrial stocks and out of growth stocks. After all, the NASDAQ is about 7% lower than its peak three weeks ago.
This has been a continuing story for me because I detected this three weeks ago and have been taking very profitable advantage of it.
Before I analyze individual stocks, let’s take a deep dive into the NASDAQ to see what’s going on:
As I said several weeks ago on February 19th, I saw the NASDAQ was at the top of an ascending broadening price pattern.
Then it broke out of that price pattern and has since been consolidating underneath the lower end of it. Last week, the story was complicated with a somewhat bullish key reversal. (The market went lower earlier and then finished higher to end the week.)
It looks like there’s still ongoing support here, but this can be a bit misleading.
That’s because despite the fact the NASDAQ being off only a few percent from its high, there's actually been carnage in the index underbelly in some of the second-tier growth stocks.
The NASDAQ (and even the S&P500 index) is primarily valued on a tiny handful of growth stocks known as the FAANG stocks: Facebook, Amazon, Apple. Netflix and Google. These stocks are still relatively high and that's what's been holding up the NASDAQ.
But many second-tier non-FAANG stocks are off 30% - 50% from their highs from six months ago.
That means the broader index itself is deceptive, yet that didn’t stop the initial descent I played by buying puts on February 19th. The QQQ (a tradeable ETF proxy for the NASDAQ itself) dropped from 334 all the way to 297 and I made a boatload of money on that decline.
I've been looking at the NASDAQ through the prism of an ascending broadening price pattern, but given the new lows I could also make the case that we could shift the lower line of the pattern like this:
It’s still the same pattern, but the implications are now slightly different. While the NASDAQ could continue to thrash around at current levels, I’m ultimately looking for a pullback to the lower support line which corresponds to about 305 on the QQQ ETF.
Any close below that level should open up a huge move lower. That’s because if the index breaks through the lower line, then it’s likely to head to where the pattern started at 11,500 on the NASDAQ.
If we get there, I don't think it would stop -- I would be looking for lower lows.
While this new interpretation could mean a delay of another few days or even a few weeks, I think that ultimately that’s where this index is going.
I'm going to leave the indexes alone for the next week and instead focus on individual stocks.
Each stock has its own risk/reward permutations, and that’s why I always say you need to look at each instrument on its own merits.
For more watch this weeks full report
I show you everything that really counts.
The highlights include:
- What weekly event just happened on the NASDAQ that could delay its expected drop
- What levels I expect the NASDAQ and QQQ to hit once the next leg lower begins
- Why SNOW is set to be snowed under even more (starts at (starts at 7:58)
- Why ZM is a short on both the weekly and daily charts -- it's not done yet!
- Are these two tech market darlings set to fall hard? Their charts tell the story (starts at 12:27)
- Wall Street Bets won't like what I have to say about one of their favorite short squeeze names
- Why it's not too late to get long GBPNZD, if you're careful (starts at 22:01)
- Is NZDCAD a good short? I have the answer ...
- Why I'm still bearish on silver and gold despite all the hype
- Plus much more!
Choose a price that makes you happy, then access my Report right now -- before the clock strikes midnight Friday:
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