One of the hardest lessons I’ve learned as a trader is mastering market timing. Last week, I warned my Substack subscribers and tweeted on Sunday about a potential market pullback, urging followers to take profits and exercise patience, especially for non-long-term holdings. With markets looking “frothy,” it’s time to reassess and strategize.
Why Are We Pulling Back?
Despite strong earnings across the board, the market is taking a breather.
The S&P 500’s P/E ratios have climbed above 23, signaling overvaluation after a rapid run-up. Markets often overshoot value as greed rears its ugly head, acting as a “voting machine” in the short term but a “weighing machine” over time. Historically, August and September are weak months, and I expect this seasonality to hold; however, I don’t believe we’ve hit the top. Dip buyers will likely step in, and I anticipate a pullback of 5-10% unless unexpected events (like extreme tariffs) disrupt the market.
My Trading Strategy for the Pullback
During pullbacks, I rely on Volume Profile (VP) levels to identify entry points on the SPY and QQQ. For a refresher on zones and how to trade them, check out my YouTube video: Understanding Zones.
Here’s my approach:
SPY Zones: The top line is the Value Area High (VAH), the bottom is the Value Area Low (VAL), and the middle is the Point of Control (POC). If we break below the VAL, expect a move to the next zone. If not, look for a failed breakdown or reversal strategy setup.
Recent Trade Example: On Friday, I traded the SPY from 620 to 625 for solid profits, using trailing stops to manage risk. If the SPY drops to the gap close around 566, I’ll enter without stops and consider adding to the position if it dips further.
Valuations and Long-Term Opportunities
As traders and investors, we must monitor valuations to spot overvalued or undervalued assets. Despite strong earnings, the market appears slightly overvalued. As we approach 2026, valuations should normalize with anticipated rate cuts and continued earnings growth. The rise of AI also supports higher P/E ratios, as companies leverage technology to boost margins and profits.
Below is a breakdown of the SP 500 sector returns.
At the start of the year, I highlighted industrials, materials, and healthcare as attractive sectors. Industrials have led the way, materials have performed well, but healthcare continues to lag. I see a rare buying opportunity in healthcare (potentially a once- or twice-in-a-lifetime chance), and I’m actively seeking companies in this sector.
My Investment Journey
When I was eight years old, my father gave me a birthday present that remains the most valuable gift I’ve ever received: a piece of paper stating that I owned a share of a company called CLECO. I can still vividly recall him explaining that, as a part-owner, I would share in the company’s profits. That moment sparked a lifelong passion for investing. Since that day, I’ve been an active participant in the market. Investing is the simplest way to build wealth, but it requires patience, a quality many lack, leading to their failure. As the market pulls, we must put on our investor hat, buy good companies, and be patient.
Recent Moves:
Re-entered Positions After Partial Sells: I added back ALB, ASML, INTC, PYPL, and CRK (with plans to buy more CRK at $15 and $12.50 if it drops). I also repurchased VFC after its earnings pop and added a new tranche in the low $11s.
New Position: I started a position in BAX, believing their recent “kitchen sink” quarter marks a bottom. This is a 12-36 month play for healthcare exposure.
Long-Term Winners: CPS broke above $30 for the first time since 2021, and I’m holding for a potential 10X return from my $5 cost basis. GNRC, up almost100% since my April 4th add, could reach $220-$240.
Possible Ideas: DEO looks attractive below $100, with an acceptable margin of safety at $85-$90. I’m also eyeing IWM at $200-$210.
Last Week’s Trade Review
Last week, my ETF account performed well, driven by a small-cap long on BGLC, where I locked in profits pre-market after news broke. Small-cap trades like this can double in a day, but picking winners takes skill. Learn more in my YouTube video on momentum stocks: Finding and Playing Momentum Stocks.
Other successes included AAPL (though a larger play didn’t materialize), CRWV, SMCI, HEI, RDDT, MP/USAR, APP, and APLD. Losses came from BULL (stopped out, but I’ll retry), NNE (no setup), and quantum names. I’m also digging the ditch on NFLX, happily buying more as it drops.
This Week’s Focus
Earnings season continues with big names like AMD, CAT, HIMS, ANET, SMCI, UBER, DIS, APP, DASH, FTNT, IONQ, ABNB, VST, DDOG, and TTD reporting. The pullback could temper expectations, allowing some to beat and hold gains. I’m holding APP shares through earnings and focusing on day trading my ETF account for quick, short-term plays; however, I’m ready to invest in deeply discounted companies if opportunities arise.
One specific chart I am currently in and will continue to work is FTAI. They had great earnings and are trying to fire long on the weekly chart. These weekly squeezes that fire long can have a lot of carry through. It is also an ICBQ that is breaking up.
These are other STRAT inside weeks I am watching:
LHX is one of my favorite charts, and it is also a company I purchased because of Dataroma. If you need a refresher on how to use Dataroma, here is a YouTube link: Dataroma
Bottom Line
Now is a time for patience and discipline. I’m focusing on quick trades and long-term investments while assessing undervalued companies and sectors. Because my kids are heading back to school soon, I’ll want to spend quality time with them, balancing family with market opportunities. Stay sharp, keep learning, and let’s navigate this pullback together!
Patience is one of the hardest lessons to master when it comes to investing, but with good analytics, like Dataroma, etc...you've shown market timing can be very profitable. Thanks for your expertise and guidance.
Do you have a discord to join?