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Market Outlook: Week of 4/25 – 4/29

Previous Week’s Update: https://25koptionschallenge.com/market-outlook-week-of-4-18-4-22-pullback-turning-into-a-crash/

Equal Opportunity in the markets! No matter who you are, everybody gets to lose

 What a blood-bath we saw on Thursday and Friday! The bottom literally fell out on no real news. That is what I call “equal opportunity”. No matter who you are or how you perform. Whether it is NFLX with losing subscribers, or TSLA with stellar earnings. Whether you were a retail trader or a hedge fund manager, everybody gets to lose! Nobody got spared.  

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Next week is where all the action is!

When good enough is not good enough: This market is so unforgiving that a good enough earnings beat is simply not enough to keep stocks up. TSLA came out with mind blowing earnings numbers and look where we are now. All the gains from the ER beat have been given back. Oh! and if you miss earnings on any count, you will be cut at your knees like we saw with NFLX. 

Next week literally makes or breaks these markets! The fun starts on Tuesday with the Trillion dollar companies starting to report, like MSFT and GOOG. Wednesday adds to the fun with META reporting earnings followed by AMZN and AAPL on Thursday. Although, markets have sliced through some critical support levels, don’t ignore the fact that the companies reporting earnings next week are market movers. Let next week tell us how things are going to unfold.

Here is something to keep in mind. If next week, you see a repeating pattern of TSLA. i.e if the heavy hitters like AAPL, MSFT, GOOG, META, AMZN beat ER, but are not able to maintain their gains in the following days, expect the markets to sell-off and test new lows in the coming weeks. What this would mean is you would want to get serious about cutting your PNR (Point of no return) losers at 50% loss and take PUT spreads on every spike to balance out any bullish bets in your portfolio. It is a bummer that we have been selling off for last 3 weeks, so haven’t got many opportunities to add PUT spreads.

Macro Analysis (VIX)

I had pointed out a few weeks ago that there was divergence manifesting between QQQ and DOW Jones and the fact that it important to be aware of that happening as weakness in one sector can carry over to other sectors pretty quickly. Well, here we are. An absolute blood-bath on Thursday and Friday where literally no sector was spared. 

VIX spiked from a tame 19 to  as nasty 28 level in a matter of a couple of days and we are back in correction territory. A large amount of stocks are off 75% – 80% from their highs just a few months ago. So there are plenty of stocks which are beginning to look very attractive. The tricky part is to let the market turn around before you go full steam ahead trading these stocks.

SPY Observations

Every index/etf/stock just dropped like a rock last week. The weakness which showed up in the Qs couple of weeks ago has bled over to all Indices. Note that we have been selling-off from 1st April, with no relief in sight. I am still hopeful that we can get a bounce from here unless we breach the “Bear Market” levels that I have pointed out in SPY, QQQ, DIA below.

What to watch for in the coming week

  • Full Bull: (N/A) It is hard to visualize any bullish scenarios right now. And we will cross this bridge when we get there (if we ever get there)
  • Deeper Pullback : The markets are already in deep pullback territory and if SPY doesn’t bounce back from $428 and take out that $440 area (which is now short-term resistance), the markets can get into a lot of trouble.
  • Bear Market: The last line of defense is $415 in SPY. These are our February lows. If $415 gets taken out, expect a quick trip down to $400 before we see any signs of a relief rally.

QQQ Observations

Nasdaq is looking the scariest of them all. We have already lost support at $340 and are pretty close to testing that Feb low of $317. If we can’t bounce back and take out $340 level with the big tech earnings next week, I won’t be surprised to see Qs heading down to $300 pretty quick from here.

What to watch for in the coming week

  • Full Bull: (N/A): No point even thinking of a bull market right now. 
  • Deeper Pullback : Qs are already past the “deep pullback zone” of $340. We are now looking at bear market scenarios. 
  • Bear Market: Last line of defense is now at $317. If we can’t turn around and go back above $340 by next Friday, I fully expect to Qs to go back to $300s.

DIA Observations

DIA (DOW Jones) which has kept its head above the water like a champ through out the last few months, experience its worst 1 day drop since 2020, dropping 1000 points at its worst. We were so close to entertaining bull market scenarios if DIA had gone above $355, but in 2 short days things have turned around and if DIA cannot bounce back above $340, the markets could get into a heap of trouble. 

What to watch for in the coming week

  • Full Bull: (N/A): Not entertaining bull market scenarios for now.. 
  • Deeper Pullback : We are already below $340 which is in that deep pullback zone. 
  • Bear Market: Last line of defense is near $330. We absolutely need to turn around and go back above $340 as early as next week if we want to see any chances of stability returning to these markets.

Key Takeways

  • Markets are at a level where Bear Market scenarios can become a reality in as little as 10 days.
  • Earnings next week make or break the markets. 
  • I haven’t lost hope yet. Keep an eye out for a bounce at the levels highlighted in all the indices.  

CHEAT-SHEET

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