Everyone I talk to or read online wants to buy this morning, except for some of the most seasoned pros, who are reeling from Friday's action. Given that so much performance has come from the tech stocks that all traded in unison for ages, I totally get that we could say the tech machine could start right up from the get-go, even with last night's downgrade of Action Alerts PLUS charity portfolio Apple (AAPL) by a firm trying to make a name for itself.
I have always felt that after a tech selloff of some magnitude like we had on Friday, particularly the breakdown during that moment when Andrew Left "debated" me on CNBC's Halftime Report with Scott Wapner, you can't just come in with guns blazing.
The preferable opening would be the opposite, the one that looks to be setting up: a crowded attempt to ring the register on some incredible gains that have really just been triggered by a remarkable earnings period.
So you need not one, but two Monday morning game plans: one for a down opening and one for an up opening.
Why do I like a down opening so much? Because we truly want to shake out the weak hands here; we don't want any summer soldiers or sunshine patriots in these stocks from these levels, to bizarrely appropriate Thomas Paine. But these truly are the times that try traders' souls.
A down opening allows us to assess the damage and to get a sense of whether there are pros or amateurs bailing.
How do we know which is which? Typically, the amateurs are finished at about 9:50am. Now, of course there are variables, and in these days of instant criticism from people who have never made tens of millions of dollars trading, it becomes quite a game of second-guessing that requires you to develop a tough hide, because they don't put how many millions each tweeter has made in the last decade.
However, the fact is that the amateurs get blown out early, strictly out of fear and ignorance. These are the people I rather viciously describe as those who think Lam Research (LRCX) is a top-notch livestock health company.
Then, at 10:00, we get to catch a rally that takes us to a level where those who bought the opening or Friday's close like to scalp. Who can blame them? They were courageous, but they aren't necessarily knowledgeable.
Then it's jump ball. You look for keys of stocks that don't fall aggressively. You can't rely on the S&P futures here, and I find the Nasdaq futures equally unreliable. So let's get the pecking order. You need to key on Amazon (AMZN) first, because there were no flies on Amazon and it was a victim of some weird flash crash at 2:50 that really freaked people out. It recovered, but not enough to make anyone feel confident.
If you see Amazon start rallying, then check for Lam Research and Autodesk (ADSK) . Why those two? Because they had the most spectacular quarters of the earnings season, so the pros go for them. Only after they see rallying will anyone reach for the rest of FANG.
Apple's problematic because there is a substantive, but unconfirmed report that Qualcomm (QCOM) is withholding its speediest chip from the company as a result of their legal dispute. I can't get a confirmation or denial from Apple, but Qualcomm is front and center spreading the anti-Apple gospel.
Nvdia (NVDA) is a tough one to game because of the newfound "casino" moniker placed on it by Andrew Left. We can argue aplenty that Left forgets Chemours and Wayfair. But he's the most vocal and the most likeable short-seller of the era.
At that point, if you see the rest of the Nasdaq rally and the rally has staying power through the 2:45pm timeframe that Karen Cramer determined years ago is make-or-break (don't ask why, as not everything is machine learning and artificial intelligence), then you are home free and you have to come in and buy near the close.
It's a bullish gameplan. It's worked many a times.
Now let's have an up opening gameplan. Keeping in mind there are always outliers -- and they are outliers, after 37 years of observing these things -- an up opening is a kiss of death, because then you have both the scalpers who bravely bought Friday's close and the institutions who lost fortunes on Friday trying to hit the exits at what amounts to roughly 11:30 timeframe from Friday.
These are two motivated professional selling cohorts bombarding the retail buyers who will have been decapitated by this interstitial machine guns dumping.
Now you have a perilous moment that could easily produce a down day. In this scenario, you have to be particularly careful, because while you can still key on Amazon now, you have to watch other groups, namely the banks, the oils and the retailers and scattered health cares. Why those? Because the institutions don't want to pull their money out of the market; they just want to continue to reposition their money into Friday's rotation.
Now you have to watch the Financial Select Sector SPDR ETF (XLF) , of which JP Morgan (JPM) is the most important, and you have to keep an eye on Nordstrom (JWN) and Macy's (M) while focusing on Chevron (XOM) and EOG (EOG) . You also have to watch for Abbott (ABT) , Celgene (CELG) , Regeneron (REGN) , Bristol-Myers (BMY) and Allergan (AGN) . I hate to burden you, but UnitedHealth (UNH) is important as is Humana (HUM) , Johnson & Johnson (JNJ) , Aetna (AET) and McKesson (MCK) .
Look, the list is long because you are gauging a rotation, and any rotation needs to be seen from two sides: the go out and the go in. If there is no go in, then the bulls are sunk and traders have to accept that they are hung and investors have to wait another day before they can be confident that positions will hold. In these scenarios, I like to buy small from both cohorts, the Amazon types and the values, just because Tuesday things will play out like Monday.
Day two of selloffs is very hard, because the bounce has to come from somewhere, or else we are in for a siege of selling that will produce retail sales on day three as they sense doom, which will be accelerated by the likes of some stoics who come on CNBC and say "this is it." I don't want to identify them. I will let you do that for yourself.
I will be narrating this on the fly in my endless venues, with Action Alerts PLUS being where the trust will spring into action if it isn't restricted by myriad mentions. The good thing, of course, is that there will be plenty of bulletins saying what we would do, which has become the preferred way of helping club members through difficult periods.
(Don't forget to sign up for my Action Alerts PLUS Club Member call on Wednesday at noon, when I will give some personal insights into this moment that might be of help, as things have suddenly gotten a lot tougher here!)