I hope everyone has recovered from their Turkey-induced comas and is ready to wrap up their year of hard work analyzing stocks and options!  It’s been quite a year of ups-and-downs, and now it’s time to evaluate the end-of-year setups and start preparing for 2024.

First, we can look at the broad market, which has basically been consolidating for the last week.  We’ll start with the ETF SPY to illustrate this:

As mentioned last week, the Santa rally tends to be a seasonal element for the market, but with the overbought status of the market, it was natural to take a pause and consolidate to let time catch up to price.  Perhaps this has been enough of a pause, and perhaps it’s time to expect something more, and we’ll review that shortly.

But first, I want to look back at last week’s idea in the ETF TAN:

As you can see, TAN hasn’t yet breached the 50-Day Moving Average.  Does that mean the trade is over?  No, it means the trade has yet to begin.  I’ll keep watching this because if TAN can get above the 50-Day Moving Average and trigger a short-squeeze, I could have a very interesting trade.  And with the 50-Day Moving Average drifting lower due to the recent bearish activity, every day that passes lowers my entry price, which is certainly not a bad thing.

But there’s something concerning happening in the market.  After the overbought RSI of the major indexes has started to fade, a leading sector is looking a bit questionable.  As I’ve discussed before, semi-conductors tend to be a leading indicator for the tech market move.  And if we look at the ETF SMH, it’s looking a bit dicey:

Below the 10-Day Moving Average and looking like it wants to dive to the 20-Day Moving Average is not necessarily a good thing for tech.  Let’s look at the ETF QQQ to see what’s going on with tech:

It’s holding above the 10-Day Moving Average for now, but I’m nervous here.  A move below could drag tech down another 3% quickly to hit the 20-Day Moving Average, and perhaps more.  For me, that means I should look for a short-term bearish tech play that makes sense or simply wait for my next bullish entry.  After all, I don’t think tech is bearish by any means, but there’s certainly justification for taking profits.  The only thing that seems like it can stop that profit taking right now is the fact that any profits get taxed in 2023, so some investors may elect to hold out and weather a minor pullback rather than owe more this year.  Time will tell.

So, I’m going to start by looking at some short-term bearish plays in tech, but of course have the bullish ideas ready to go once we see the end of the consolidation and/or pullback in the sector.  If I can find a gem within the tech sector, and if I can leverage that trade using options, this could set up a home run trade for me.

As always, go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades.  And please, if you have any questions, never hesitate to reach out.

Keith Harwood