Daily Commentary: February 23, 2024

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Stay Long – Take Gains If You See This

Posted by Pete Stolcers on February 23

A buying climax could be setting up. If that happens we could see substantial gains, but the backside will be nasty. Here’s what to watch for.

PRE-OPEN MARKET COMMENTS FRIDAY – The market is making a new all-time high and the “dip” was brief and shallow. It was actually more of a compression since we stayed close to the all-time high. This was our most bullish outcome of the 3 possible scenarios I highlighted.  

There are not any short-term “speedbumps” during the next two weeks and I am expecting a gradual float higher on light volume. You can take bullish swing trades, but only starter positions. As the market confirms the breakout and as the stock “behaves”, you can gradually add. Your average cost will be lower than the current price and this gives you the confidence to hold the position. In the back of your mind you should take comfort knowing that you can place your stop at your entry price. That gives you limited downside and unlimited upside. Never add to losers.

I like using Dave Wyse’s WATM strategy here. The key to the strategy is the first expiration cycle. You sell a put vertical using a near-term at the money put and you purchase a long-term out of the money put that ideally spans the next earnings announcement. If the near term put expires, you keep selling near term puts to generate income and you evaluate each week. Your odds of not losing money on the strategy increase greatly once you get through the first week. I don’t see any speedbumps for the next two weeks. I sense that we are nearing a buying climax. The advantage of this strategy is that you are long an out of the money put with lots of time until expiration. If the market sours quickly, these could really produce nice gains.

China’s property values have dropped 2.1% in the last two months. That is a collapse and it will impact consumption. They are fighting deflation and the PBOC just cut rates. I sense a credit crisis brewing there. I have been monitoring it closely for the last 18 months and it is ramping up.

“Fed speak” has been hawkish and the earliest possible rate cut is in June. The ECB just said they are not likely to cut before the Fed.

The market rally has been narrowly defined. NVDA just posted the highest single-day increase in market cap ever. Stock valuations are high by historical standards.

So what should we watch for? As the market climbs, the move will accelerate. Long green candles from here on out will present danger. These gains can be very substantial. Sellers will vaporize and the market will fly higher. A big gap up to a new all-time high should be used to take gains. That is very likely the high. Alternatively, a giant move higher intraday that is instantly smacked down would also be a sign to take gains. Notice that both of these are at higher levels so there is an opportunity to make money. The chances of a monster drop overnight is very low right now because we don’t have any scheduled news. A move like that would only happen if the news is material. It is possible that the market floats higher in a nice orderly manner with plenty of bid checks. That is ideally what happens and it is still very possible.

Wait for support to be confirmed. Beware of stacked green candles. We do NOT want to blow through $510. If that happens, a buying climax is brewing.

Support is at $504 and resistance is at $510.

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