Stocks have made a nice comeback after testing support last week in the wake of a violent summer swoon tied to the yen carry trade. We now have overhead resistance to contend with that must be exceeded before we can all take a big exhale and maybe enjoy the last few weeks of summer. I run four equity portfolios at Inside Edge Capital, the most actively managed is appropriately named “Active Opps.” On the way down in July all of the positions were stopped out in Active Opps, most with a gain after stop losses were trailed higher, and some positions at a loss. On August 8, we added back six of the strongest names on our watch list (META, UBER, AAPL, SPOT, NVDA, CELH), but we also established a put spread to hedge our positions in the event the zone of technical resistance that I’ll outline here in fact holds. In this article I’ll cover the technical formation of the resistance zone as well as the option hedge we’re using. I’ll be referring to the Nasdaq 100 Index ETF ‘QQQ’ daily chart for the following 3 charts: To start we have a simple bar chart with only the 200-day and 50-day moving averages. You’ll notice that price broke through the 50 day on July 24th, re-tested it as resistance on August 1st, and then continued lower into the 200 day moving average at the August 5th low. As we’re rallying back we must now consider the 50 day moving average a source of resistance around $473. Next, we’ll add an uptrend line (dashed red) sourced from the Q4 ’23 lows that attempted to offer support in late July, but was ultimately defeated. As price re-approaches this trendline from below this too can be considered a source of resistance. Finally, we’ll add a Fibonacci retracement study that measures how much of a recent trend is recaptured or ‘retraced’. The key 61.8% (approximately 2/3rds retracement) is right on top of the 2 other sources of resistance mentioned above forming a zone of resistance in the NDX 100 that ranges from $469-$472. If this is an ill-fated rally, or a so-called bear market rally, my bet is it will fail around this zone. If we do fail I think there are reasonably strong odds that the market wants to go and retest the 2021 breakout level of $406 that now acts as support. To hedge against that possible move lower in the Active Opportunities portfolio I bought a QQQ put spread hedge expiring August 30th that will take us through Nvidia’s August 28 earnings. Specifically, I bought the $420 puts and sold the $410 puts. Currently that $10 spread can be bought for less than $1 creating an incredibly favorable reward-to-risk ratio. As I said in last week’s article I remain bullish, but in the event I’m wrong and the market turns lower this high-reward, low-risk hedge can serve to mitigate the move lower to the 2021 breakout level. -Todd Gordon, Founder of Inside Edge Capital, LLC DISCLOSURES: (Owns this QQQ hedge) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
