Chart Master: Big Tech earnings will trade like a pair of twos

Key Concepts:

• Pareto's Carter Worth charting analysis
• Pair of twos analogy (low conviction trade)
• Ricochet pattern after a significant drop
• No man's land (indecisive price action)
• Implied move (expected price fluctuation)

Analysis of Major Tech Stocks

Carter Worth analyzes the charts of four major tech companies (Apple, Microsoft, Amazon, and Meta) representing a significant portion (20%) of the S&P 500. He characterizes the current situation for each as a "pair of twos," indicating a low-conviction trading environment.

1. Apple (AAPL)

• Drop: Apple experienced a 35% drop from its peak, compared to the market's 21% drop.
• Ricochet: The stock has recovered approximately halfway from its low.
• Pair of Twos: Worth argues that Apple is currently in "no man's land," making it difficult to determine whether the ricochet will continue or falter.
• Trading Recommendation: He suggests that this is not a time to make a significant bet, as the odds are not clearly in favor of either a long or short position.

2. Microsoft (MSFT)

• Drop: Microsoft declined by 26% from its peak.
• Ricochet: The stock has rebounded somewhat but remains in an uncertain position.
• Pair of Twos: Similar to Apple, Worth believes Microsoft's chart indicates a lack of clear direction.
• Trading Recommendation: He advises against making a substantial bet, as the risk-reward profile is not compelling.

3. Amazon (AMZN)

• Drop: Amazon experienced a 33% drop, again exceeding the S&P 500's 21% decline.
• Ricochet: The stock has recovered partially, but its future trajectory is uncertain.
• Pair of Twos: Worth reiterates the "pair of twos" analogy, emphasizing the lack of a high-probability trading opportunity.
• Trading Recommendation: He suggests that this is not the time to bet big on Amazon.

4. Meta (META)

• Drop: Meta also experienced a 35% drop.
• Ricochet: The stock has rebounded somewhat and is currently in a similar position to the other stocks analyzed.
• Implied Move: The implied move for Meta is the highest among the four stocks, at 7.5%, indicating significant expected price fluctuation.
• Pair of Twos: Worth cautions against letting personal biases influence trading decisions, emphasizing that the chart does not present a high-conviction setup.
• Trading Recommendation: He advises against making a substantial bet based on personal opinions or predictions, as the chart does not support a high-probability trade.

Pair of Twos Analogy

Worth uses the "pair of twos" analogy from poker to illustrate the current market conditions. A pair of twos is the lowest possible hand in poker (excluding five random cards), representing a low probability of winning. He argues that when faced with a "pair of twos" situation, the best course of action is to fold, meaning to avoid making a significant bet.

Conclusion

Carter Worth concludes that the charts of Apple, Microsoft, Amazon, and Meta all exhibit a similar pattern: a significant drop followed by a partial recovery, leaving the stocks in an uncertain position. He advises against making substantial bets on these stocks at this time, as the risk-reward profile is not favorable. He emphasizes the importance of waiting for high-conviction trading opportunities where the odds are clearly in one's favor.