An oversold Nasdaq market got the fuel it needed to thrust past the three moving averages Wednesday, as Fed Chair Powell gave more clarity on the central bank's latest thinking. The activity qualified as an O'Neil follow-through day in the Nasdaq and S&P 500.
While today's gains at the surface of the averages were impressive, the recent pattern of lagging broad market participation was evident. Specifically, the advance-decline lines for both Nasdaq and NYSE did not equal the averages' gains. This is part and parcel of a market gripped by a breadth divergence.
We are now back to playing the long side after some quick three-day gains on the short side in six issues. My guess is that a good percentage of subscribers who took some of these short ideas overstayed their welcome due to the rapidity of the moves. If so, this is not necessarily a bad thing. You have gained valuable experience first-hand, and can make adjustments for the future.
As a bull market matures and becomes dominated by institutional rotation out of higher-risk growth and into value and defensive stocks, the snapback effect once a downdraft is over becomes less pronounced.
Thus, for the moment, we are not going to jump right back into the tennis balls as they bounce back into new-high ground. To begin with, there are not many of them compared to those seen in snapbacks earlier in this bull market. That is a function of the destruction incurred by the growth sector.
And secondly, the speculative sentiment has changed markedly such that the demand, not just from large players but also from hedge funds, is not there like it previously has been.
For the short side, there will be other opps down the road. In the meantime, the averages must rally to keep the crowd honest before it is likely anything on the short side will interest us.
On the long side, there is nothing to write home about. In situations like this where we seek instant exposure, we can turn to ProShrs Ultrapro QQQ 3x ETF (TQQQ) above last week's swing high of 170.51.
In summation, today's rally turns the trend of the Nasdaq from down to up. New short ideas are off the table. The long side does not look attractive from a reward-to-risk perspective. We will stay in cash for the meantime, other than some long exposure via the TQQQ for those inclined. It is our only position on the Focus List.
Introduction to the service video (38:00)
Money management and risk management video (20:27)
Bread and butter pullback video (11:10)
Bread and butter pullback: Pt II video (15:09)
Bread and butter pullback: Pt III video (31:48)
Bread and butter pullback: Pt IV video (30:16)
Short-selling video (25:53)