Welcome back to another Weekly Market Prep! Before we dive in, let me start by summarizing what went well last week and what I could have done better:
The Good:
Traded ES well from the long side Thursday & Friday, leaning into the support from SPX 3900, as well as the 100 and 20DMAs on ES
RTY 1900 Pivot worked well, producing nice shorts below (finally)
The Bad:
I have to admit, I did not do a good job of respecting my ES 3990 Weekly Pivot, which would have made trading the beginning of the week easier for me
I went against one of my own personal rules and sized up too large on an ES trade that was against the session's trend
My attempts to short Gold were duds, resulting in stopouts; the DXY couldn't get off the ground for long
Even though I review my trades at the end of each session, it's worth spending a few moments also reflecting on the week as a whole. I'm not perfect--nobody is. I'm sharing my own self-reflection in an effort to show you what real trading looks like. If your only source of trading updates come from FinTwit, you're very likely to have an incredibly biased view of what actual traders go through considering most people prefer to post their winners and avoid talking about their losers. Common sense should tell us that's simply not realistic, nor should it be anyone's expectation in the markets.
I know this has nothing to do with preparing for the week ahead from a Technical Analysis perspective, but I do think it's an equally important part of the preparation process. If our focus is only levels, lines, and pivots, we're very likely to repeat the same mistakes again in the future. Honestly, finding key market levels is the easy part...deciding how to trade them is way more challenging and can make-or-break your week.
With that said, I am determined to do a better job this week of trading with the session trend and respecting my Weekly Pivot...which should be easy that level isn't changing much this week.
Why not? Well, because not much has changed from last week's Market Prep! ES lost -0.74% last week, so most of the key levels/MAs remain important heading into this week. Sorry friends, there won't be any grandiose predictions or revelations in this week's Market Prep...just good ol' fashioned range trading.
In my opinion, there's really only one chart that I need to guide my decisions for the coming week:
On the 1hr ES Chart above we can see ES finished the week right in the middle of the trading range we've been discussion for a couple weeks. If you can say with confidence where we are headed from here, then you're a better trader than I am because all I see is a coin-toss. Thankfully, we have some beautiful confluence on the chart above to use as guides. On my chart (with back-adjusted calculations) we have the 200 Daily Moving Average (DMA) currently resting at the exact top of the trading range and the 50DMA at the bottom. Pretty cool, right?! (I'm a nerd and get excited about things like this). This setup makes me strongly prefer shorts below the 50DMA and longs above the 200DMA, but I think it's worth waiting a few points on the long side...let me show you why:
The chart above shows us Delta by Price Levels for 2023 and we can clearly see the largest Positive Delta Iceberg at 4020 with some angry sellers clustered below it down to 4010. Even though the top of my trading range and the 200DMA is at 4015, I'd probably wait for a break of 4020 to get aggressive on the long side in order to avoid stopruns or whiplash.
It's also worth noting the largest YTD Iceberg at 3989.50 which I still think it's an important pivot for the market right now. However, I'm not going to use 3990 as my Weekly Pivot this week, instead I'm going to lower it a tad to 3968.50, the mid-point from last week's range which coincides with a daily Support/Resistance Line:
Let's look at this Weekly Pivot from a different angle:
There's a lot going on with the 2hr ES Chart above, so let's break it down: First, I can't ignore the fact buyers defended the top of the 3830-3900 Consolidation Range twice now. Considering Friday was OpEx, that does add some "noise" to the analysis, meaning it's impossible to say if the bullish move was simply fueled by dealer positioning (as I suspect) or if it actually reflects directional sentiment from the largest market participants. We simply don't know. What I do know is that 3868.50 represents a nice "middle ground" High Volume Node on the Volume Profiles chart above, roughly halfway between two interesting volume shelves. Breaking the shelf at 3990 would likely result in a swift move back up to 4015, and breaking the bearish shelf at ~3945 would likely push price down to 3915 quickly...I like those setups. Using 3968.50 as a pivot should theoretically give me a "head start" positionally in case either shelf is defended and we don't get a breakthrough. No matter how you look at the chart above, it's hard to see it as bearish in my opinion.
Defending 3900 twice is important to me...after all it's the "Mother of all Pivots":
See what I mean? ES 3900 is our proverbial Ron Burgendy..."kind of a big deal."
If price can clear the 200DMA and that descending trendline that's on everyone's charts then I see no reason to fight against that as a momentum trader. Despite the broader macro outlook, things are still looking pretty bullish from a technical perspective. To take it a step further, I'd argue we also have familiar conditions for a Bear Market Rally in SPX:
The relationship between Implied Vol and Historical doesn't inherently have much predictive power, but when we factor in daily Moving Average crosses/breaks, the setup does look shockingly similar and I'm struggling to shake these bullish vibes.
The Relative Volatility Index also touched my "Danger Zone" and subsequently pulled back (which I ignored in my day trading like an idiot), but you could argue that it has now reset a bit and could run higher again.
Long story short, the market still appears to be at a crossroads to me and as you can see not too much has changed from last week. "Big Tech" Earnings are beginning this week with companies like Tesla and Microsoft, with the rest reporting during the first week of February. Anything can happen from here, but keep your eyes on ES 3990 and do your best to minimize strong directional biases until we move from here:
This sticky 3990 level was important in 2022 and so far it remains important in 2023.
Other Key Levels/Extensions This Week:
4102.25: Full +1 Fib Extension from Last Week's Range
4068.75: +0.75 Fib Extension from Last Week's Range
4035.25: Last Week's Highs
4002: +0.25 Fib Extension from Last Week's Range
3935.25: -0.25 Fib Extension from Last Week's Range & Likely Rebid Area
3868.25: -0.75 Fib Extension from Last Week's Range & Likely Rebid Area
3835: -1 Fib Extension from Last Week's Range & Last Line of Defense for Bulls
Stay nimble, stay safe, and as always have fun.
Happy Trading,
Horse