EB Daily Market Report - Special Update - Monday, April 3, 2023

First, welcome to Q2 2023! It's certainly an interesting day as, over the weekend, OPEC announced that they would cut oil production by over a million barrels per day. Immediately, crude oil prices shot higher and, at last check, crude oil ($WTIC) was up 6.5% to over $80 per barrel. The stock market's initial reaction? "Oh no, inflation is back! The sky is falling!" What did we see? Another gap down. We've seen this type of market behavior and reaction all too often since May 2022. The QQQ gapped lower and hit an intraday low just after 11am ET. This afternoon, the QQQ is staging a recovery. Ho-hum.

The other interesting reaction was the bond market. The 10-year treasury yield ($TNX), which should go up significantly if inflationary fears accelerate, has dropped 6 basis points to 3.43%. Bond investors do not seem to be at all concerned at the potential of higher inflation. Neither am I.

Members have reached out to me about when to SELL leveraged ETFs like the QLD and TQQQ. I've discussed recently the strategies I use to enter this positions, so the natural questions that have followed are about the timing to sell. It simply comes down to risk. When the stock market is trending higher, as the QQQ has been, I tend to ride my leveraged position. One technical reason I'd consider selling would be if a negative divergence develops on the QQQ 60-minute chart. That could happen if we see another short-term price high. Another time I'd sell would be if the QQQ hit a major price resistance level - or even neared it. To consider both of these possible exits, let's look at the QQQ 60-minute chart:

Negative divergences can lead to short-term selling. A 60-minute negative divergence usually tells me to be careful for the next 1-3 days. It's also important to watch the RSI on a 60-minute chart. As you get to and above the overbought 70 level, the risks begin to grow. If you don't want to be caught holding leveraged ETFs during volatile up and down periods, selling when the RSI moves above 70 can make sense.

Here's the next major price resistance on the QQQ:

As the QQQ rises and gets closer and closer to 332 price resistance, the more the risk grows on the QLD and TQQQ. Notice I didn't say that the QQQ, QLD, and TQQQ would be guaranteed to fall. I simply said that the risk grows as the QQQ price climbs towards resistance.

Bottom line, ANY profit I make on the QLD or TQQQ is a good profit, so I'm never at all worried about selling too soon. I'll have opportunities down the road to jump back in at some point. And when I sell the QLD or TQQQ, it's not like I'm in cash and missing out on further appreciation. I simply rotate back to the QQQ and lessen my exposure, that's all.

Currently, I'm still holding my leveraged position, but I will have no problem slowly exiting this leverage as we make our way towards the 332 level on the QQQ. I will NOT wait until 332 is reached to begin selling. I will sell along the way. To the downside, I'd be most concerned with a QQQ close beneath 311. I'd at least lock in small leveraged profits if that level is lost.

I hope that helps.

Tom