You may not like this market, and what I'm about to say may not apply in a week or two, but for the time being, this is a buy-the-dip market.
When I look at a chart of the Invesco QQQ Trust (QQQ) , I see plenty of things to grumble about. We're still hanging out under the declining 200-day simple moving average (SMA), the year-long downtrend line continues to halt upward progress, and despite the folks on CNBC getting excited by each 1% or 2% move up or down, no net progress has been made in months. And if we want to talk about earnings, I haven't heard much that makes me want to accumulate a bunch of new positions.
But the market doesn't care, at least for the time being.
Let's talk about Wednesday's rebound and the rally that followed the declines of Jan. 18 and 19.
Yesterday, I told you that Microsoft (MSFT) is overvalued and a crummy long-term investment at current levels. While I stand by that assessment, from a day trading perspective the stock was a great trade following yesterday's bearish gap down once it recaptured the session's volume-weighted average price (VWAP). Microsoft stock broke above its VWAP around 10:20 am EST and never looked back. Once dip buyers pushed MSFT above its opening print, the QQQ popped above its VWAP, day traders took over and the bulls were in complete control.
Trading earnings is a tricky game. The strategy can change from earnings season to earnings season. It also can evolve dramatically from when companies begin reporting in mid-January and when things wrap up in late February.
If you fancy yourself an earnings trader, my approach is pretty simple. If a company has rallied sharply into its report and fails to crush estimates and raise guidance, fade a bullish gap. If a company delivers so-so results or soft guidance but hasn't rallied sharply into its report, look to get long for a day trade once traders push the price back above the session's VWAP.
The bottom line is that I think the market will be lower three or four weeks from now, so I am not interested in accumulating new positions. However, earnings season provides company-specific day timeframe volatility. With the assistance of a VWAP and the discipline to cut your losses if a trade goes against you shortly after you enter, this is a good time to be a scalper.
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