The market’s under a lot of pressure right now.
As if the speculations about AI overvaluation weren’t enough, the on-again-off-again war with Iran reached another boiling point last weekend.
Lucky for us, there are always trade opportunities in the market. And high pressure situations give us some of the best plays.
As investors clench anxiously, I enjoy the peace of mind that comes with back-to-back trade setups.
Join me:
Yes, the market looks pretty shaky right now.
Here’s a chart of the Invesco QQQ Trust (NASDAQ: QQQ) since the all-time highs on June 3. It’s making lower and lower highs.
“Jeff, what could we possibly trade in a market like this?”
Take a look…
Tech Bleeds, Small Caps Hold… For Now
Tech sector weakness is the main reason for the bearish market we’re seeing.
The QQQ is a tech heavy index, as a result, the sector selloff bleeds into the index and the rest of the market.
As of July 13, the QQQ is trading 4.7% off its highs from June 3.
An index I’ve routinely compared it to is the iShares Russell 2000 Index Fund (NYSE: IWM).
The IWM is comprised of small-cap stocks. Companies that have significantly less revenue and strength than the blue-chips in the QQQ.
And yet, the IWM is only trading 3.2% off the highs it made on July 1, almost a full month after the QQQ’s highs.
The IWM has stayed stronger for longer, as the QQQ struggles to rally.
This kind of split never lasts. When one side runs this far ahead of the other, the gap eventually snaps shut.
The IWM can’t hold near its highs forever while the QQQ bleeds out. Either, small caps will roll over to meet the market lower, or tech will catch a bid and rip higher off support.
My Strategy
There’s one price level that sticks out right now.
$700.
It’s a big, round, psychological level, and the QQQ is leaning on it.
Yes, the QQQ is making lower highs, but it’s holding support as well.
And round numbers like $700 are significant triggers for investors.
It could represent a last ditch effort to sell in the $700s, or a price floor where buyers scoop in to buy at a bargain.
Here’s my thesis…
In this market, we’re one headline away from the QQQ ripping higher (at least on a short term basis).
President Trump watches the stock market like it’s his personal report card. He’s told anyone who’ll listen that a strong market means Americans are doing well.
It’s his gauge for success in the oval office. He does NOT want this war taking a bite out of investor profits, and he’s shown us over and over, that he’ll drop a peace headline the second the tape turns ugly.
When the headline lands, and the QQQ is parked above $700 support, I think the bulls will come in to push prices higher.
Key Trading Levels
Here’s my trade plan:
- Symbol: QQQ
- Entry zone: $700–$708
- Target: $720
I want short-dated calls, bought into weakness, near the $700 level.
With short-dated contracts, a small move in the underlying asset gets magnified exponentially. The QQQ only has to rally a few percentage points off support for the right contract to double.
There’s only one caveat, and it’s the same one I’ve been preaching all summer.
Trading volume is thin. The big money is still on vacation until the fall surge shows up. So I’m keeping my size small. Small enough that a slow, choppy day doesn’t rattle me. Small enough to trade like I’m dead inside.
When the bounce comes, I’ll take the cash and move to the next setup. If the headline never shows and $700 cracks, I’m gone. The math gets done beforehand so my emotions don’t get a say.
Build a plan. Stick to the plan.
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
