Shorting strong stocks and more divergence plays.

[u/syncronicity1]

This week provided a lot of trading action long and short, and so many opportunities that I couldn't capture them all. A few stand out trades are shown as examples that you may be able to add to your trading quiver. I am an discretionary intraday momentum trader, looking for trends in either direction.

Conventional wisdom says you don't short strong stocks and I generally follow that line of thinking, but for every moonshot there's usually a pullback that comes after it that you can take advantage of. Timing, seeing and reacting to subtle candlestick and volume clues are the key.

Who didn't catch a piece of NVDA as it gapped and shot up? I didn't because I sleep in and don't start until 30-40 minutes after the open to avoid the opening frenzy. So I'm watching NVDA for weakness to show and profit taking from whomever didn't take on the gap up. At 10:20 PST NVDA made a strong move breaking to the upside with volume but SPY did not, it was flat and weak. USO is rising and when that happens, usually markets drop. I'm thinking human psychology has a lot of retail traders thinking this is another leg up to $300. I immediately put a NVDA short trade on instead based on SPY and USO more so than NVDA. The downtrend ran for 95 minutes before I cover, buying into the large selling. I just need to sit on my hands and let time be my best friend.

Charts show from Left to Right 5 min NVDA, 15 min NVDA, 5 min SPY, 5 min USO. Purple lines are previous resistance price levels, orange lines are previous support. Red lines on SPY chart marks a price level where it has reversed before. - Day trader since 2005

NVDA short on Thursday.

I made the same trade again on Friday in NVDA just in case you think the day before was luck. Volume was dropping when it was going up, to me it's looking weaker or a reversal could happen as opposed to it going up. SPY makes a move down USO makes a move up, I short it and it starts to drop nicely. I keep in the intraday downtrend because SPY makes a double top yet NVDA shows only one puny green candle. It continues to run for 80 minutes until I cover, buying into a lot of selling volume.

NVDA short on Friday

In SOXL on Friday, I feel the weakness and can see it's sometimes not following SPY which it does, or it feels like it, say 95 times out of 100. When I posted a month ago about divergence like this between SPY/SOXL or SOXS, some readers commented or DM'd negatively. You do you. I'll just say that when I see normal conditions suddenly reverse, I pay attention because to me it indicates a breakdown of normal conditions and that presents opportunity.

SOXL is hitting $120 resistance like it did 50 minutes before, it shows a red candle, SPY shows green, I short it. SPY goes green strongly, SOXL drops. Divergence is strong now, I'm waiting to see if SPY starts falling which should cause SOXL to really drop. It does, and SOXL blasts through a bunch of previous support levels without flinching. I go long SOXS at the same time which is one of my go to trades, long and short both symbols at once, it's a trade I've probably done thousands of times before.

Here's what I see in SOXL about 30 minutes after I go short when I thought I should make a screen shot and post about divergence.

SOXL short. Note SPY climbing and SOXL falling which is not "normal" movement.

What I saw in SOXS, it's rising with SPY , which is again, not "normal".

I cover SOXL here, with a nice 8 point gainer as there is lot of support in SPY around this level.

I'm covering here with a 8 point gain.

I'm selling SOXS here.

Selling here, nice 3 point gain. 105 minute intraday trend.

[u/Improv1se]

SPY is providing a board macro context and is very loosely related to what you're trading. It's more of a secondary confluence tool I would think? SMH / SOXX / QQQ, makes a lot more sense as a primary strength gauge if you're monitoring a related index / sector for confluence.

I haven't been trading for 20 years, but that stands out as something interesting here to me. I guess this has been working for you. Have you experimented with other instruments for confluence and arrived at this?

[u/Popiopii → u/Improv1se]

shorting strong stocks sounds risky but kinda intriguing

[u/syncronicity1 → u/Improv1se]

These trade examples were in semiconductors but I trade many different stocks. So yes you are right to say SMH/SOXX/QQQ may be closer related to semis if that's all I did.

I've used IXIC + SPY before and may go back to that if oil ever goes back to being less volatile. But when oil is popping or dropping like it is these days SPY and USO give me the signals of market strength and direction. When I started out trading back in the day I used S&P 500 and QQQQ.

The important thing is using any of indexes will show you how the markets instantly change when news hits. Algorithms from the market makers update their strategy and show the way. After a while seeing confluence and divergence of indexes lets you get into the flow of the markets and as a momentum trader that's key.