Hi Folks,
I just wanted to do a quick post covering our recent "Top Pick of the Week" trade, how I found it, the process behind it, and why it applies to the title of the this post "Momentum Setups in Volatility!"
The past few weeks have been very eventful for the market with many news driven catalysts driving the tape. Most notably $SIVB being a top 20 bank with 200b in assets going out of business inside a 3 day period! Naturally volatility is going increase dramatically and risk is going to increase substantially across the board.
During these periods in the market relative strength is very important to pay attention to, especially if its happening across an entire sector. This can show where BIG money is rotating into for some short term flight to perceived quality. Last week I waited for relative strength to present itself and held off on the "Stocks to Watchlist" for AoT members until Tuesday evening! This gave the market time to show its hand.
On Tuesday I started noticing clear cut relative strength in semi conductor names. $SMH vs $SPY or $QQQ ETF is a great way to visualize this and that's what I usually start with, with this process. (It can be any ETF vs ETF or even something as simple as using https://finviz.com/map.ashx to visualize sector strength across an entire market)
After noticing the relative strength in $SMH I started looking for an individual SEMI name to play on this strength. From a technical trading point of view $AMD stood out! I tweeted this to AoT members late Tuesday afternoon!
Shortly after I started building a strong STOCKS TO WATCHLIST for AoT members! Built off of the relative strength we patiently waited to see Monday through Tuesday! Doing this minimized risk for the week instead of just getting long or short first thing Monday morning. Its important to remain very nimble in these conditions!
Tuesday night $AMD made the "Top Pick of the Week" in the STOCKS TO WATCHLIST. So members who follow along with the Top Pick of the Week trading strategy would look to get long $AMD Wednesday morning!
Wednesday morning the market gapped down and so did $AMD. Gap down opens in volatile conditions are more ideal and risk friendly then gap up opens. Gap up opens tend to get sold down more often then not.
The key point to watch for during a gap down opens is if the market is able to recover that gap and move the stock from Red 2 Green (R2G) through the gap. This is another relative strength characteristic and $AMD did just that on Wednesday, out performing the market by the end of the day!
Spotting the relative strength early in the week really helped to minimize risk and maximize potential profit in a less than ideal market environment!
Thursday through Friday $AMD continued to lead. Again on Friday showing its relative strength characteristics, closing up +1.28% while $QQQ fell -0.47% on the day!
I tweeted this to AoT members to Friday afternoon:
Finding clear cut relative strength in volatile market conditions can produce outstanding results if the conditions are right!
This trade was good for +12.80% on the week from the Wednesday mornings opening price into Fridays close.
You want to look for:
Sectors that have clear stand out strength when the market red
Continuation of strength into the next trading session
Gap down opens that are quickly bought and moved back to green in these sectors
Outperformance when the market stabilizes
This is what I look for in the stocks that make the "AoT Top Pick of the Week" and "Stocks to Watchlist" each week! I believe this alone makes the strategy consistently viable.
The AoT Top Pick of the Week strategy has traded up +14.73% for 2023
This is how the strategy worked compared to the market in 2022:
AoT Top Pick 2022 returned: +115.74%
SPY 2022 returned: -18.62%
I hope you're able to create your own strategies and trade ideas off of these methods I've showcased today!
Cheers and happy trading!
Art of Trading
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