Happy Sunday, Traderade Members! This week's prep will be very straightforward thanks to a roughly 70pt range the market has been stuck in for the past couple weeks. As a breakout trader, I now have a nicely defined range to plan my trades around. Therefore, I see no reason to overcomplicate things by speculating on how the market will react to the start of earnings season this week. On a personal note, my bias last week caused me to miss some great trades and take some poor ones, so I'll be going back to basics with this week's Market Prep article.
Let's dig in.
Say what you want about the state of the world, the stock market can be best described with one word: resilient. The daily SPX chart above shows the S&P500 still in a technical uptrend, attempting to breakout from the choppy range it's been stuck in for almost a year. Considering everything that has happened in the last year, I'd argue this is one of the most resilient equity markets I can remember seeing.
The Traderade 3month VIX Model is still long, so rather than fight with the market like I did last week I'll be waiting for this to flip short before I attempt another swing trade short (that was exhausting).
In the meantime, I think we have a fantastic new range on ES for day trading:
I'm excited about this new range for a couple of reasons: First, it's fairly well-established at this point, which tells me we're primed for a breakout. So while I may have wasted last week sitting in a short Nasdaq position like an idiot, ES is setting up for some great day trades this week. Secondly, we have a unique feature towards the middle of this 4100-4172 range on ES...a sizeable iceberg:
This messy 1hr ES chart above shows us Delta by Price for April. Immediately we notice a couple large areas of institutional interest: 4172 (the top of the new range) and 4140. Let's go back to the range chart to discuss this:
While I'll be using ES 4100 as my Weekly Pivot this week, the large iceberg at 4140 gives us a nice shorter-term pivot for intraday trades. I like this unusual phenomenon because it provides the opportunity to potentially enter a day trade that can turn into a swing trade. Typically, when trading a breakout from a range, you usually wait for a pierce of the top to take longs or a pierce of the lows to get short; this can often result in the frustrating "False Breakout" and stopouts. While it is part of the game, I like the scenario above because I can potentially get short under 4140 without waiting for 4100 to break, netting some points in case we get a false breakout (the same can be said in the other direction).
"So Horse, why not just make 4140 your Weekly Pivot?"
Great question. Honestly, because 4100 is a beast and way more important to the overall market trend than 4140. We've seen almost 2 straight weeks of incredible 0DTE Options positioning at SPX 4100, which has acted like a brick wall for price. If the sellers finally manage to break below it, I expect the move to the downside to be substantial, possibly all the way down to SPX 4000 where the largest overall option positioning is:
However, I don't think a trip to 4000 will come without a fight...
I spoke about the 2hr ES Chart above during last week's Midweek Update Video and I still think it's valid. If the sellers finally break 4100, there's a really solid chance we see a rebid near 4075 which would mark a 50% retracement from the latest pump. That level is also just above a sizable volume shelf near 4060, so it's natural to look for buyers to defend that low volume area before price gets sucked back down to the YTD Point of Control (POC) at 4025.
Keep in mind, despite me describing bearish scenarios the bulls are still very much in control of price. I'm simply pointing out some things to be cautious of if we don't get the breakout long above 4172 this week. For example, according to my "Crayon Lines", the bulls are retesting a recent channel they lost last week:
If the buyers can't get over 4172, keep an eye on the 20DMA which coincides with that rebid area we just discussed.
We can also see SPY at a resistance point on the daily chart above. Just another thing to be aware of this week.
I'm also a little leery of how low Implied Volatility has gotten. We can see from the Yellow Line above that IV is hitting lows not seen since late 2021...we all remember what happened after that. The bottom indicator on the SPX Daily Chart above is the Relative Volatility Index, which is inching closer to a reversal signal (but not quite there yet).
In addition to some big earnings this week, we also have monthly OpEx (Options Expiration) on Friday, which has been known to introduce some volatility into the market when it becomes complacent. All in all, in order to get a breakout to the upside this week I think "Big Tech" needs to lead the way:
...and truthfully it's very close to doing so. The Daily Nasdaq Futures (NQ) Chart above shows price revisiting the key 13250 level yet again...
This was the level I was quite short against but had to throw in the towel on Thursday. I wouldn't say it was a bad trade, I managed to take some off for a profit and put it back on again for a profit a few times over the last 2 weeks but despite the fact that we haven't got back above my 13250 level I'm simply done fighting it for now. Above 13250 and I think there's a solid chance NQ rips the faces off of anyone short. Truthfully, I'm watching that level closer than anything on ES right now. For sustainable breakouts to occur, leadership needs to lead. I personally don't want to see continued relative weakness from NQ if I'm going to put money at risk long the S&P500.
Other Key Levels/Extensions for the Week:
4234: +1 Fib Extension from Last Week's Range
4211.50: +0.75Fib Extension from Last Week's Range
4143.75: Last Week's Mid
4121.25: -0.25Fib Extension from Last Week's Range
4076.25: -0.75Fib Extension from Last Week's Range + Rebid from 50% Retracement
4053.50: -1Fib Extension from Last Week's Range
4008.50: -1.5Fib Extension from Last Week's Range
I hope you all have a great trading week ahead. Fingers crossed for some great breakouts!
Happy Trading,
Horse