Happy Sunday, traders. Going back to the written format this week after receiving customer feedback that my videos (and I quote) have "become of less value since the weekly updates were changed from a simple written document to hour long self effacing videos." That was certainly not my intent with the videos but maybe it's time to get back to basics. Let's dive in.
Current Market Momentum: Bullish (Above all the Key DMAs)
Summarized Plan for the Week: Not interested in trading, whiplash risks are too high for my tastes.
Potential Sources of Whiplash this Week: Big Tech Earnings, QRA, Fed Interest Rate Decision, Geopolitical Escalations with US Casualties in Jordan/Syria, Indices Grossly Overbought, Rising VIX/SPX Positive Correlation.
Plan Instead: Wait for market to pick a clear direction after this week.
Last week, the S&P Futures (ES) moved up towards the +1 Ext from the prior week's range and stalled. Wednesday's Daily Candle had all the classic characteristics of a "Hard Top" for the S&P500, yet buyers remained resilient, forcing me out of a swing short attempt and back to the sidelines. Similar price behavior was witnessed in the notoriously overbought "Big 8":
When a gap-up Shooting Star Candle with Hard Top characteristics does not produce an actual Hard Top, the risk to the upside grows dramatically. While many of the momentum indicators/charts we'll look at in this article are ferociously bearish, a market that refuses to drop is not.
When we look at % of Stocks above their 20DMA (Blue) & 200DMA (Red), breadth still remains quite strong overall.
Weekly SPX Momentum remains bullish as well with no indications of special cause (Yellow or Green Candles).
With the aforementioned catalysts on deck, basic trendline analysis for SPY indicates a possible range of 497 - 476 this week, with the odds favoring the bulls as we're closer to one than the other.
The S&P500 Futures are currently sitting right at the 135MA on the 10t Renko chart I discussed in a post earlier this week: https://www.traderade.com/post/renko-moving-averages-indicator-discussion
Considering the trend is still up, I'm anticipating another period of "chop" for the 135MA/Renko Momentum Indicator above before one of the many catalysts causes a range break. The thesis for this is based on new overlapping Value-Areas:
On the 1hr ES Candlestick Chart above we can see a new Consolidation Range developing between ES 4900-4925, which historically makes for a strong framework to catch breakouts, favoring longs above 4925 and shorts below 4900.
Note on the chart above 4841.75 was the scene of prior Poor Highs and the most recent breakout to the upside. After last week's range compression, that level also happens to be the -1 Ext from last week:
For that reason, I would expect a strong rebid from the buyers should price move down to that level this week. In terms of upside possibilities, I believe ES has the rare opportunity to realistically achieve a +2 Fib Ext from Last Week's Range based on the current channel price it is in:
Based on the Channel Highs for the week, 5012 would be my upside target for the week (the +1.75 Fib Retracement) and I would look for short-side opportunities between that level and 5027.25 as the market would be in desperate need of an RSI reset at that point.
Let's talk a little more about the Bear Case now.
Based on the largest YTD cluster of Icebergs and the new Overlapping Value Range Lows, I am absolutely waiting for a loss of ES 4900 before attempting more short trades. There's almost -25K contracts absorbed by the Buyers just above 4900...fighting that while price is above is no longer worth it to me.
Using an Anchored VWAP approach based on Swing Lows/Highs, we can see the S&P Futures continue to hang on to the AVWAP Long Line (White) by a thread. However, this chart went from notably bearish last week to neutral this week as the AVWAP Short Line (Red) is now rising upward instead of falling downward like it typically does when it acts as resistance.
In my opinion (and it's just my opinion), one of the most concerning recent developments in the market is the strong positive correlation between the VIX and SPX:
It's rare to see the positive correlation reach these levels without some sort of reactionary price tantrum; however, timing it remains a challenge as these periods of dislocation can last an uncomfortably long time before resolving.
Speaking of the VIX, the Traderade VIX3M Model remains short despite this being one of the worst trades this model has ever been in for this long. I find this both interesting and concerning.
One chart that currently reads bearish but is worth watching this week is the PC Ratio vs the S&P500:
I think the PC Ratio will be a source of potential clues this coming week: If we see this number rocket upward before the major Big Tech Earnings start or FOMC, then the odds of the market experiencing a big downturn are greatly diminished as it's likely an indication of event-based hedges. The classic way of thinking about this is "If everyone's hedged for downside, it's way less likely to happen." However, if the market remains complacent heading into known catalysts, then the door is still open for a swift move down towards ES 4841, in my opinion. I'll be watching this chart closer than I normally do this week.
I'll be using ES 4903.50 (Last Week's Mid) as my Weekly Pivot this week, favoring longs above and shorts below.
The only individual ticker on my watchlist to trade this week is TSLA:
I'm waiting for a trendline confirmation (3 touches) to the downside on TSLA before initiating longs, looking for the Visible Range Value Area Low to hold here. While TSLA remains a notable laggard vs the "Big 8," if we get a violent upside move from the indices this week I'd still expect an outsized upsize move from TSLA as well given its popularity with degenerate options traders and the fact this name has never really traded based on true fundamentals anyway...why would I expect that to change now?
Whatever you do this week, I'd be extra cautious with any premarket/postmarket trading...lot's of serious earnings on deck:
Happy Trading (or in my case, not trading),
Horse