Feedback Invites Exposure
Quick recap of the past 2 weeks:
On May 31
I wrote the report Strong but Stretched, this was focused on being cautious around protecting progress.
Going into June, Semiconductors the most important group, and others were very extended. Starting new positions here was difficult, and the likelihood of the market pulling back was high. There was no reason to be bearish, but if you press at the wrong time its very easy to give back a lot of money made so far.
I tried a couple trades early that first week of June and stops were hit almost immediately. If you have not read The Feedback Loop, its one of the most important articles I've written.
That negative feedback was a sign to step back and not try to continue to push. Because I didn't continue to push, that Friday we had a huge distribution day closing at lows was painful, but damage was contained much more than if I was pressing on margin.
On June 7
The next report was Environment > Setup. Friday's distribution felt similar to October 10th last year where if you remember, after that day the market became much more volatile and difficult. The goal last week was to mostly observe and try to manage remaining positions as best as I can.
Mon-Wednesday we had big gaps every morning, wild volatile price action, and weak closes. The intraday momentum during these days when we were bouncing unfortunately came from cyclical and defensive groups instead of growth. A bull market needs to be led by high growth groups. The action the first 3 days was looking like we may chop for a few weeks before the environment becomes high probability again.
Thursday however we had an expectation breaker. The market was bouncing (like it did intraday earlier in the week) except we had momentum back in GROWTH, including our most important group - Semis.
At the same time in Semiconductors we had strong high quality leaders breaking out to new all time highs such as AMAT, KLAC, ASML.
That action doesn't mean the coast is clear and we are out of the chop, but you for sure don't see that action in leaders near a top. No reason to be bearish. It was enough for me to put on some exposure to get some feedback. Outside of DDOG, all new trade attempts got immediate traction. Positive feedback.
The Plan This Week
In the market especially in recent years being quick to adapt is so important. Even though last week ended up being a positive expectation breaker, I'm still not back to fully invested. New positions show initial positive feedback, the action last week was constructive, but the market needs to keep inviting me in and proving itself.
I don't know how this week plays out but as long as we go forward with that mindset it will be a good one. Stops on new stuff are tight, if the market chops and pushes me out I will ease up, if we see more progress being made I will press into it.
Theme Observation
Semiconductors and Neoclouds look like the groups to focus on for me if we keep acting well. Specifically Neoclouds look like they have the most actionable setups of them all.
Software has a lot of individual good looking stocks, but has been notably weak.
The group is 50% of a stock's move, so you want the group to add wind at your back, not the opposite.
Software isn't broken, just weak. If it bounces and strengthens up the leaders in the group to buy are clear and in the report below.
Semis are the most important group in this market so SMH is top focus. Its still possible that we continue to chop and base build for a little longer, but also possible we don't after the strong bounce off the 10-week and close near highs.
Neoclouds are all acting well with many in the group looking just like their ETF chart... coming up the right side of bases, or sitting on top of a big base.
To my eye this group looks very constructive, and where I will also be focusing.