WARNING: You Might Want To Sell Soon...
In a Nutshell
Markets opened Friday overbought after the Bank of Japan raised rates 25 basis points, raising the risk that Japan selling US Treasuries could push yields higher and pull money from stocks. NASDAQ, Bitcoin, and memory chip stocks like Micron remain extended and prone to gap-down pullbacks, while MSTR was lightly shorted under $25,000 with plans to add only on confirmation or trim into strength. Risk management focused on closing shorts when oversold and avoiding oversized positions ahead of volatility.
These notes were generated by AI and may contain inaccuracies.
Markets opened Friday with the NASDAQ (QQQ) reaching highs of 722. Markets sold off Wednesday, recovered and bounced back Thursday, and remained elevated Friday. The Bank of Japan raised interest rates by 25 basis points during their meeting, marking the highest level in 31 years. The Japanese yen is now beginning to fall as a result.
Japan is the largest foreign holder of US treasuries. If the Bank of Japan needs to intervene and create money, they may need to sell US bonds. If they flood the US bond market, yields will go higher, meaning the US will pay more on borrowed money. High enough yields could pull money out of the stock market and into bond markets as they become attractive guaranteed returns.
The NASDAQ has a common resistance range at overbought levels and a common support range at lower levels. Before the FOMC rate decision, markets tested lows of 700. Markets are at support ranges and looking for reasons to recover, which explains the consistent recovery pattern. There is a common resistance range where markets tend to get rejected and patterns tend to repeat, though they don't always have to.
Markets have gap down potential if they begin to pull back. The expectation is for relatively flat trading with efforts to end green. The current position is more of an overbought range.
Memory chip stocks remained bullish during choppy market conditions. Micron was specifically noted as continuing to push higher. The strategy is to let it push up as high as possible, similar to last week's movement, to create better shorting opportunities at the highs around $1,000 or $1,050 down to the lows of $900. The more it rips up, the better the opportunity becomes for shorting.
Bitcoin moved from $78,000 to highs of nearly $81,000, possibly related to the Bank of Japan developments. Bitcoin shows a repeating pattern of rallying and correcting, becoming very overbought within a short period. The pattern shows consistent rallies followed by corrections. There is gap down potential if Bitcoin sells off.
A small short position was taken on MSTR with the view that downside outweighs upside risk. The position size is less than $25,000, described as light. The strategy is to add more only with confirmation and close if consolidation indicates a flat day. MSTR follows the pattern of ripping up quickly then pulling back.
If you believe that MSTR is only going to rip up higher, then I say buy more at 146 and show me, right? But if you believe that, hey, maybe it did rip up very quick and it tends to pull back. It rips up and then it tends to pull back, then maybe it's not the worst idea to maybe trim.
Shorting carries greater risk than other strategies. When MSTR is oversold, shorts are closed out to respect potential recovery. The reverse applies to overbought conditions. Position size management and risk management were key focuses for the week, along with knowing when to close trades, especially going into volatile periods.
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