Weekly Wrap-Up:
1. SOXX
Today, I was looking into trading GOOG and AVGO.
These are all companies on the Nasdaq, however, so it is important to know what is happening with the SOXX in order to ensure that I carry out the highest probability trades.
As can be seen above, the SOXX looks like it wants to continue declining to the next major support level on the daily timeframe. Because, at the moment, the price action could be considered to have just stopped at a smaller station on the overall journey.
“Where the SOXX goes, the rest of the market follows.”
Soloway’s strategy seems to be to completely ignore the Intermarket relationship with the relevant market’s ETF, in favour of just focusing on the technicals for a 10 to 15% bounce.
For some reason, I am not totally comfortable with this approach, because my assessment of the charts is telling me that it is too simple. And with simplicity comes stop-loss hunts and other forms of market manipulation.
If I can see the setup easily, then it worries that other experienced professional traders will be seeing the same thing.
This reminds me that my trading edge will always involve being extremely patient, using the larger timeframes with the highest levels of emotional control. As these are the characteristic found hardest to develop by other traders.
As a next step, I am going to carry out a backtest to see how correlated the price action of the individual stock has been with the overall ETF.
If there is no strong correlation then that will be very valuable data. Likewise, alternatively, if it is highly correlated then this will also be a great insight.
2. GOOG
When the markets re-open on Monday consider starting to scale into a long GOOG limit order.
3. AVGO
Consider starting to scale into an AVGO long when the markets re-open on Monday.
4. CMG
Monitor CMG closely and consider starting to scale into a long position (using a limit order) at the major support level on Monday when the markets re-open.
5. RUTS
Learning Points
- AVGO – intriguingly, backtesting reveals that AVGO’s parallel channel (price action) seems to be a lead indicator of which direction the price action of the SOXX is most likely to go.
Therefore, waiting for the SOXX to move first would have been a trading mistake that would cause the loss of many great trading opportunities.
. - GOOG – similarly, backtesting reveals that the SOXX is not highly correlated with GOOG’s price action movement. Therefore, it would be best to trade GOOG in accordance with it technicals as oppose to anything else.
Next Action
- Backtest GOOG and the SOXX.
- Backtest AVGO and the SOXX.
- Consider scaling into a long GOOG trade on Monday when the markets re-open.
- Consider scaling into a CMG long (using a limit order) on Monday when the markets re-open.
- Monitor RUTS closely on Monday when the markets re-open.
