Trading Plan for the week - 16 DecYesterday we saw how important context is. The early session was horrible while traders and the market waited for the Fed meeting. At 2pm the market took off. Not because the Fed chairman said anything unexpected - he removed uncertainty. The market hates that state and will always drive towards a state of clarity. How did we know that this was going to happen? We get the breadcrumbs from the PC ratio. The PC ratio is not a holy grail of indicators, it has some flaws to it however using it in conjunction with other indicators you get a really good sense of what is happening underneath the surface.
We have seen this movie many times before. Sentiment moves in cycles and when the 10 Day MA of the PC ratio reaches extreme levels, we need to act in a counter trend manner. One element of trading that most novice traders fall victim to is recency bias, especially in volatile times. The mindset of thinking it cannot get better when you see multiple red candles, one after another is common and there is a need to develop the ability to trade counter to this. We can see that he PC ratio line is pointing down giving credence to the possibility that the Santa Claus rally will take place as the blue line heads down to the red zone. I expect that we will see a short term rally to new all time highs and then we will reverse and, unless you are careful, we will have a correction towards the end of January where a lot of gains made in this cycle will be given back.
Looking at the market overall we have a number of sectors that have repaired since last week and my favourites are XLP, XLK, XLV and XHB ( i prefer to trade ITB in this case) and SMH (i prefer to trade SOXL as a proxy).
Some individual stocks that we have positions in at the moment are (covering a variety of strategies).
AAPL
MSFT
NVDA
COST
WMT
ABBV
FWHR
Trades I have added today. I have detailed in the planning video my rationale for each of the trades and i have demonstrated how to build a strategy using the planning tool for the follow up trades which will be put spreads.
BOT +3 VERTICAL XLV 100 21 JAN 22 140/145 CALL @1.57 ISE
BOT +1 VERTICAL XLK 100 18 MAR 22 174/190 CALL @5.65
The above trades will be added to the 30 DIA portfolio.
