Nasdaq 100’s Special Rebalance

How Nasdaq 100's Special Rebalance Punishes The 'Magnificent 7'

What's prompting the rare special rebalance in the Nasdaq 100? It's triggered when all the Nasdaq 100 stocks with individual 4.5% market value weights collectively account for 48% or more of the index.

And that happened on July 3, with six stocks: Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Alphabet (GOOGL), (AMZN) and Tesla (TSLA). Together they accounted for 50.9% of the Nasdaq, Bespoke found. It's the third time since 1998 this rebalance happened.

Nasdaq Rebalance Table
New individual weightings in Nasdaq.

Why Not Better Profit? – Week of 8/5/22

On Friday morning, the market gapped down after jobs numbers were released. This put most stocks back to the middle of their ranges, not giving any immediate set ups for open. TSLA had been on a 200 point run the last couple of weeks, so it would be one to look for a short if the market was going to remain weak for the day.

My top watch was COIN. I was looking for trade below Thursday's low at 86.78, which coincided closely with the pre-market low. This would give it a chance to fill the gap from Wednesday to 82.25. COIN put in an opening range low of 86.52, before running up to 98.87 over the next 45 minutes. I scalped around this, never allowing it to confirm the opening range low. The first entry was a trade just to take a trade, in anticipation of a break below the opening range low, and ended up being a loser. After a few more scalps, I was essentially break-even, and had spent a bunch of mental capital taking these lesser trades. At that point, I decided that the day was going to be a wasted day, and just watched the rest of the day.

Meanwhile, TSLA tested the 903 pivot from the low on Wednesday, putting in a low of 896.12 30 minutes after open, before printing its first green candle at the top of the new hour.

On the first candle of the next hour, TSLA made a new low of 895.09, with proper entry the very next candle on the break below. TSLA never saw above 895 the rest of the day, putting in a low of 856.63.

TSLA 5 Minute Chart 8/5/22
TSLA 5 Minute Chart 8/5/22

I did not take this trade, because I had already burned my mental capital for the day taking a trade on anticipation, before it confirmed, and then scalping to get back to break even.

One Good Trade – Week of 5/20/22

Entry and exits of QQQ Trade on May 19, 2022.
Entry and exits of QQQ Trade on May 19, 2022.

Wednesday, May 18 saw the markets break down again after threatening to move higher the previous day. We've seen the market try this several times in recent months, only to be rejected and start a leg lower. Wednesday evening, the question was posed as to what the market might do the next day. I decided to take a look at the chart, and saw similar breakdowns as recently as 5/5 and 5/11.

QQQ Chart after 5/18/22
QQQ Chart after 5/18/22

Here, I have circled the daily candle of the day after each breakdown, 5/6 and 5/12. Both days saw a gap down, printing wicks at least as big as the body, with the close ending very near the open. I surmised we may see something similar for 5/19.

QQQ 5 Minute Chart 05/05-05/06
QQQ 5 Minute Chart 05/05-05/06
QQQ 5 Minute Chart 05/11-05/12
QQQ 5 Minute Chart 05/11-05/12

Premarket trading on 5/19 showed that we were indeed heading for a gap down. I decided to drill into the 5 minute charts for 5/6 and 5/12. I noticed that each day saw 10-25 minutes of selling, before 60-90 minutes climbing back to the afternoon area of resistance the previous day, at which a fairly sharp selloff occurred.

On 5/18, the afternoon resistance was 292-293, so I decided that I would enter a short at 292.

QQQ 5 Minute Chart 05/18-05/19
QQQ 5 Minute Chart 05/18-05/19

The pattern was a bit different, with buying occurring immediately, and hitting 292 within the first 10 minutes of the day. I took the short here, and a furious selloff occurred in the subsequent 10 minutes. I took off 1/4 of the position just above 290, and another 1/4 just above 288. Realizing that it was likely to be a choppy day, and the selling appeared to be running into buyers, I decided to cover the rest of the position. This ended up being a good choice; 287.58 held as the low of day.

One Good Trade – Week of 4/22/22

FB 22-04-22 Trades
Entry and exits of FB Trade on April 22, 2022.

I liked FB on Friday morning for continuation and potentially making a new low below the last 2 month range. QQQ had closed the previous day below the range it had been in the last 2 weeks, and FB was providing an adequate gap up to give plenty of room to run to at least the previous day's low around 185.

FB Daily Chart heading into April 22, 2022
FB Daily Chart heading into April 22, 2022

I did not get the best entry, as FB went 1.5 points higher after my short. The high touched the line of resistance dating back to the previous day. I should have recognized that, and waited for entry on the 1 minute chart with the first candle close below a previous close/low. This would have been an entry about 2 minutes later, closer to 192.

I took profit on half my shares at 190, in case the psychological round number were to hold. From there, it was an easy to trade to manage. I took small profit another point down, then my next profit just above the previous day's low. It didn't crack much lower the rest of the morning, so I ended up taking half of my remaining shares around 185, and then was able to lower my stop on my final portion, which was hit later in the afternoon.

FB 5 Minute Chart
FB 5 Minute Chart for April 22, 2022

Why Not Better Profit? – Week of 4/22/22

Last week, QQQ gapped down to start the the week, and stayed in a tight range between 338 and 348. It was an odd week, starting with the gap down on Monday and closing the day red, then Tuesday gapping up over Monday's high and selling off all day, then Wednesday straight up all day, and finally Thursday selling off all day. I told myself that I wasn't planning to take trades to the long side until we had a close over 348, outside of any strong stocks on obvious bounce days.

With this bias in mind, I ended the week with my highest profit total since the week before Thanksgiving.

So for this post, I want to highlight a trade I didn't take, but should have been all over on Friday. Thursday had QQQ finally close below the tight range we'd been in for a week and a half. This gave a green light to trade Friday with a strong sell bias.

QQQ Daily Chart before April 22, 2022
QQQ Daily Chart before April 22, 2022

GOOGL tested 2500 and held several times since mid January, closing Thursday right at 2500 again.

GOOGL Daily Chart before April 22, 2022
GOOGL Daily Chart before April 22, 2022

GOOGL opened with a small gap up on Friday, allowing for an entry through Thursday's low at 2490, drifted lower all day, and did not even have a worthwhile bounce until the afternoon.

GOOGL 5 Minute Chart, April 22, 2022
GOOGL 5 Minute Chart, April 22, 2022

This type of setup happens a handful of times per year, so it's a shame I decided to focus on a different ticker.

One Good Trade – Week of 4/8/22

GME Transactions

Heading into the day on Thursday 4/7, GME had been showing weekness for nearly 2 weeks, with the 150 area previously being a strong level.

GME Daily 22-04-06

I tried to enter a short at 151, as I saw the ask continue to build and drop, but it moved too fast, so had to settle for an entry closer to 150.

GME is not one that I would normally trade, as it tends to be manipulated in either direction, but it can also really provide a lot of range, so I sized down, and watched closely for signs of a reversal.

22-04-07 GME 5 minute

I decided I wanted to set the sell targets in 1/3 portions, but essentially ended up having the 2nd and 3rd portions be near the same area, as the wider market was showing signs that it wanted to bounce. Once in the trade, I didn't believe that GME would reach my 3rd sell, just above 140, and it did not.

Site Update

From September, 2016 until September, 2021 I posted nightly scan results to this site. I also traded select results as multi-day to multi-week swings between 2017 and 2019 with 100% of the trades being profitable. At the end of 2019, I found myself in position to switch to day trading full-time, and have done so successfully for over 2 years now.

I had been meaning to provide this update for some time now. Being that the strategy and philosophy of my day trading is different from the swing strategy I have documented here for 5 years, I have discontinued the nightly scan update.

I am proud of what I was able to accomplish in the site's prior format. I originally had lofty goals; to not only discern trading ideas from my scan results, but to eventually build a community, and generate subscription income. I quickly realized that it would be a tall order to provide customer service, and this would all require full-time attention, which would also be antithetical to the "Trade on the Side" (part-time trader) spirit of the site.

I have found trading to be a great fit for my personality and provides the perfect type of challenges for my mind to be engaged as a career, day-in and day-out. As a core value, continuous improvement is a focus, so I would like to use this site to document successes, challenges, and failures going forward. This will help me to eventually reach my full potential as a trader, and hopefully someday inspire others to be better traders.

Why Not Better Profit? – Week of 4/8/22

Red days are a part of trading, but losing days should never happen.

It's fitting that the inaugural 'Better Profit' post kicks the series off with some of the most egregious errors a trader can make. This ended up being a type of week that if you have more often than about once per year, you're going to blow up your account. I'm going to explain the errors I made, and also why I left this week feeling strangely calm and optimistic about the future.

Around July, 2021, I transitioned away from primarily options to primarily shares, as I realized I could better control my entries at exact equity prices, vs the less structured movement of options premiums. Since that time, I was using far from my potential of my buying power, as I wanted to prove to myself I could be consistent, before sizing up. There were also other challenges that caused me to resist sizing up, such as trying to teach my mind to unlearn what a dollar really means. It's rare that you won't be red at some point during the course of a trade, so it's important to decouple stock price points from unrealized p&l dollars.

After a week and a half vacation, I finally decided that this was the week I was going to take the next step, and size up more appropriately for my account size and profit goals. Wednesday ended up being my most profitable day in nearly a year, and I followed up with another solid day on Thursday. These days together resulted in a 0.7% account gain. A weekly milestone that I hadn't attained in over half a year was in reach with a solid Friday session. I was feeling more positive about my trading, and as I recognize now, a bit of euphoria was setting in. There have been several times in my career that I've made trading errors after a bought with euphoria.

Here's a point by point narrative of what happened on Friday that led to loss.
-Woke up around 2am Friday morning with a terrible stomach ache. Was able to finally get back to sleep around 4am.
-Snoozed my alarm and accidentally ended up overslept until 15 minutes after market open.
-Headed to my computer desk, booted up the trading software, and pulled up my charts as quick as I could. I did not spend time analyzing, did not have any breakfast, and proceeded to jump right into a trade.
-My initial bias was to the long side, where as the SPX indicated there should be no reason to have a long bias yet.
-Initial trade(s) were small losses, and then was able to make a couple of subsequent trades to be green on the day. I should have stopped here and prepared some breakfast.
-I found myself about $50 away from a weekly milestone. At this point, I believe I felt I could get a quick scalp and call it a week. The trade ended up red.
-By this point, it was already starting to approach lunch time on a Friday. Volume is usually so low starting at at this time, that the risk to reward just isn't there to continue trading on Fridays.
-Instead of just stopping and accepting a red day, I began to oversize to try to chase the losses.
-I recognized that the market was just chopping, but yet I didn't stop.
-When all was said and done, I finished the day with a 4% loss on the account.

This was a compounding of mistakes that is really egregious at this point in my career.

If I simply wouldn't have oversized, yet continue to enter the same ill-advised trades, I would have only lost 0.5% on the account for the day, end still ended with a green week.
If I simply wouldn't have traded after a night of sickness, and missing the opportunity to properly prepare for the day, I would have had my most profitable week of the year.

Rules to Follow:
1) When you recognize euphoria, step back.
2) When you can't adequately prepare for the day, take the day off.
3) Determine a proper directional bias for the day.
4) Don't place a trade if the direction isn't clear.
5) Recognize when you don't have a premium day, and size down accordingly, or stop trading.
6) Accept a red day. Don't chase losses; instead focus on better and more selective entries for higher probability of successful trades.
7) Don't oversize. There is never a need to oversize.
8) Stop trading if you have reached your daily maximum loss.

I'm a little surprised and happy to report that I am not discouraged moving forward. I knew that the road would be bumpy as I transition to sizing up in my trading, and I have identified my mistakes. This can be considered a bump in the road, as I am only down 4% in my account for the week, and I live to trade another day. I lost a nominal amount that I had previously imagined would kill my psyche and confidence, yet I'm still alive, and I'm still a profitable trader. The goal is to learn from mistakes, and survive each day and advance.