NPP's This Week In Trading 8.25.19

Weekly Letter: 8.25.19

Market Environment: Volatile


New Names Watching This Week: SPXL

Last week we wrote:

Unfortunately, this week is going to be no easier. The SPX finished in no man's land and the next move is anybody's guess. So once again, we will be prepared for both a bullish scenario and a bearish scenario.

We came into the week prepared, but the market through a couple of curveballs. It shook us out of our SPXU in the choppy trading and we suffered a sizable loss. Then on Friday it appeared the markets received the Powell news well and a couple of long trades triggered, then came the Trump tweets and we all know what happened next. Thus we had one of our worst weeks in a long while, down -2.70%. However, there are some silver linings. 1) We picked up many names in the bloodbath at prices we've been waiting for including AMZN CRM NVDA and TWTR. 2) Market sentiment indicators are at extreme bearish reading which 90% of the time provides a monster bounce, giving us an excellent chance for many of our currently red longs to go green. 3) We bought SPXU on the bounce end of day Friday in case there is further downside before the monster bounce.

So once again we come into this week prepared for any scenario. And to help us further prepare, I've mapped out the 3 most likely scenarios I'm anticipating. (Keep in mind, this all for the short term. I'll get to the intermediate term a bit later.)

Scenario #1 - The 200sma retest then bounce.

Scenario #1.png

In this scenario, the SPX goes first towards its 200sma giving us an opportunity to sell our SPXU. Then we wait on the bounce to the red downtrend line to sell our longs. Then if the downtrend holds, we buy more SPXU.

Scenario #2 - Immediate Bounce

Scenarion #2.png

In this scenario, we get a bounce before a 200sma retest. If this happens, we'll sell all of our longs. and if the downtrend line holds, we'll double down on our SPXU.

Scenario #3 - Knife Through Then Bounce

Scenario #3.png

In this scenario, the bears take the ball early and knife right through the 200sma taking us to 2780/2750. If this happens, we'll sell our SPXU around 2800 and then buy SPXL and one or two more names for a bounce to at least test the backside of the 200sma and ideally the red downtrend line. If the downtrend holds, we'll add back SPXU and stay short until signs of a bottom.

The move on Friday has, at least for the short term, cast heavy uncertainty in the market. All trades will now be Quickies. Even trades that were Swings have been changed to Quickies. We will only be playing bounces on longs. And buying SPXU on downtrend retests until the market can break it.

Which leads us to the Intermediate term...

We don't know how far the market will go down before it finally bottoms and a new uptrend resumes. But we do have price levels to watch to give us clues. The SPX 2780-2750 zone is the first key point. If the market bounces from there and can recapture the 200sma, there is a good chance we have bottomed. If it cannot recapture the 200sma, further downside to 2730/2680 can be expected. And if we lose 2680, the odds of a December low retest become favorable. Wherever this market finds a bottom, we be able to make a "Bottom Is In" call when the SPX reclaims its 50sma. When it does that, we will finally change our Market Conditions from "Volatile" to "Trending" and set our sights on 3300 SPX.

But we have a lot of twists and turns ahead before we can even think about that.

Onto week 35!

This Week's P&L:

NPP: -2.70%
SPX: -1.66%

This Month's P&L:

NPP: -0.02%
SPX: -4.99%

This Year's P&L:

NPP: +8.03%
SPX: +13.57%

NPP vs SPX Lifetime: (blue line=NPP)

Screen Shot 2019-08-24 at 8.49.15 AM.png

Current Positions:

Long-term: EA GILD

Swings: TSLA (short)


Charles Chao