6/24/2018 Markets look extended. I’m looking for at least a 5% correction in technology stocks within the next two weeks.

At this point, I’m unsure if tariff news have much of an impact on the stock market anymore.  Although the initial news triggers selling, the dips seem to be aggressively bought up, at least for technology stocks.  

Either way, price action is telling me that technology stocks are overextended and thus, I’m looking for a 5% or larger correction in the QQQ.  Something interesting is that the S&P500 and Dow Jones outperformed the QQQ significantly in the most recent two trading days.  I don’t remember this happening in the last few months.  

To reduce risk, you can also consider a pairs trade.  You can short QQQ and buy SPY.  In this scenario, you are betting that technology stocks under perform the overall market.  

I added a short position on QQQ on Thursday after market close near 175.35.  My mental stop loss is at 178, and my hard stop loss is set at 179.  The rationale is that if this is the next move down, QQQ shouldn’t be hitting new all time highs.  Judging by previous moves down, if QQQ drops the same magnitude of 12%, QQQ would be trading at 156-157.  If QQQ drops into the 166-170 support zone, I plan to move my stop loss down to my entry point.  

I’ve been eyeing this short position on SIG for a couple weeks now, and I finally pulled the trigger on Thursday last week.  SIG has been in a consistent downtrend, and has now broken out into a large resistance area between 58-60.  I’m banking on the fact that buyers are exhausted, and price will retest the 50-51 level.  The risk reward was about 4 to 1, meaning I could be right 25% of the time on these kinds of trades and still come out even.  

I’ve taken a pretty large position in MGM at 30.  Friday’s action was quite bearish, but I’ll let the trade play out.  Somehow this price action reminds me of my trade on AA last week. 

My stop loss is at 29.15, with a target profit area at or above 33.5.  The risk reward is about 4 to 1 again.  

Here’s the same trade on the weekly chart.  As you can see, MGM is still in an uptrend, and has now fallen to the bottom of the trading range (support).  

Have a great weekend!