Liquidity Traps As Far As The Eye Can See
Pathing out a correction in tech, how I'm plotting my short setups in pot stocks, and an emergent breakout in the market's most hated sector.
Priming a Pullback In The Nasdaq
Yesterday I made the call for a rotational trade. This includes other Mag7 stocks, where AAPL’s rally on Friday got the Nasdaq to push to new highs.
Yet today, capital came out of some of the other Megacaps, and there was a slow bleed lower into the lunchtime session.
There’s the possibility of a failed breakout here. All of the prior pushes above $570 were met with sellers, and if it weren’t for AAPL’s run the market’s structure would have already flashed a failed auction.
It’s way too early to call for a top, but there’s a straightforward pathing that could develop:
Failed push at 570 leads to test of 20EMA, leads to early dip buyers
Retest of 570 and failure to break, leading to a rollover
Crack 20EMA, early dip buyers go from green to red
Test structure and swing AVWAP
Here’s what it would look like (pink lines):
That would be a normal corrective pattern… not a true top but enough of a warning signal to start looking for more distribution.
The problem is… hedges are still expensive. In fact, that premium is one way the market has held its bid so well.
I’ve got a dead simple cheap hedge that can payout big on a pullback. That will be in today’s Client Section, along with 8 other trade setups.
How To Find Price Targets In Pot Stocks
Here’s a daily chart of MSOS, a cannabis ETF:
I guess we’re doing the thing. Pot stocks are running on a potential reclassification to Schedule III. I’ve also made the call that the crackdown on illegal grow houses will unlock some risk premium.
But this first big push will, most likely, not lead to fortunes being made. Probably some heartbreak first. Not only are these stocks loaded with bagholders, they’re stuck in dilution hell.
When your share count is a hockey stick, then the demand needed to push prices is a LOT higher.
Some names have cut that risk by doing reverse splits, and there could be some solid squeezes. I’m going to show you two spots I’m looking to get bearish into spikes.
1. Bagholders from 2024
Most of these names have a ton of volume churn from the past two years. There were a ton of bottom callers that turned into bagholders. These are going to be spots where investors will look to get back to breakeven and bring new supply on the market.
2. Swing AVWAPs
These aren’t guaranteed short opportunities, they’re more like reference points. These are often used by large players to direct trades, and they’re self-reinforcing. Aggressive pushes into any of these will lead me to zoom in and start watching short term price action.
If these names spike into late August, I’ll be looking to buy October put spreads. Out of the money.
Is Quantum Going to Push?
IONQ is starting to tease us with a clean breakout. Earnings are out of the way and the selling was quickly recovered.
Quantum’s a hated space. The tech may not be fully proven, and even if it is… it could take some time to realize cashflow from actual customers.
That’s why I like the space. Price action is running counter to the obvious narrative.
Here’s some others:
RGTI. I own some Aug 20 calls that are dead money unless they have a huge earnings move this week.
QUBT, remount setup
QBTS, needs to clear 19.
We’ve got more setups for ConvexSpaces Clients, including my best hedge in this market. Want the firehose? Become a Client today.