"Hello, friends. Welcome."
Sorry, I had to do my Jim Nantz impression to start this week's Market Prep. I played in my first golf tournament of the year this week and very happy to have my first victory! Feels good to lift a trophy again, us old guys don't get many chances to compete, especially with kids and responsibilities.
Despite all the serotonin flooding my brain after playing good golf, I'm not getting many "warm fuzzies" about the stock market this week after reviewing the charts. If you're new to Traderade, this weekly blog is intended to be my personal preparation for the week ahead. My goal is to assess various gauges of momentum and derive a weekly pivot for myself, where I'll favor long trades above and short trades below. Let's dive into the charts!
Our first chart is a simple look at the S&P500 Futures using daily candlesticks and the key Moving Averages (20DMA in Blue, 50DMA in Green, 100DMA in Orange, and 200DMA in Red). I also have the 0.25 Fib Increments based on the prior week's trading range. As you can see, ES_F closed right at the midpoint from last week. While the bears put up a good fight into the end of the week, the Fib Increments put their efforts into perspective: We closed very neutral for the week. No victory for the Bulls or Bears.
From a Daily Range perspective, we can see on the chart above SPX is still holding above this critical Supply & Demand Zone. As previously mentioned, I'm personally not getting super concerned about the market until SPX loses this range (i.e. price trades under 4300 SPX).
The SPY Daily Chart above with my personal indicators shows this S&P500 ETF losing a key area of Support & Resistance from a trendline perspective. In fairness to the bulls, there were many, many charts with gaps and it's entirely possible some of the downside action we saw last week was lower-volume holiday-week trading to close some gaps...but that's pure speculation.
The Traderade VIX3M Indicator did flip short on Thursday, which got my attention given the track record of this momentum indicator. I was waiting for this flip before feeling comfortable trading the short-side and we finally got it...Game On, Bulls.
Breadth is still laughably neutral, with the Percent of Stocks Above the 20DMA (Blue) and 200DMA (Red) both sitting near 50%. No tradeable info here, but worth noting. Breadth does matter and ideally bulls want to see a "breadth thrust" for continuation...unless it's the value components that thrust breadth upward, that may not be a good sign.
Another dynamic I've been watching closely is volatility, especially Implied Volatility...it's still struggling to get off the ground, which is what you'd want to see if you're bearish. Market participants still seem to have very little interest in Puts or downside protection, which is a bit odd to me given the state of the world, but money speaks louder than anything and Put Options have been rather horrible bets over the last year. I imagine this will change heading into the Fall and the Election, but for now this market seems content to slowly drift upward while ignoring bad news.
The Bond Market had a strange week as well, with significant selling shown here on TLT. Mayhem often speaks about "The Jaws," between QQQ and TLT and those are probably worth watching again if bonds are to continue this recent breakdown...definitely a potential catalyst to drag equities down.
So far we've established a few things worth recapping:
The overall market is still in a technical uptrend
Market closed very neutral last week
Breadth is unimpressive
Several momentum indicators are showing signs of weakness
The bond market isn't happy
With this in mind, it's time to figure out where to put my Weekly Pivot in order to stay on the correct side of price. This week I'll be using my favorite level in the market: ES 4420
The chart above show us 2hr Candlesticks on an ES Chart with the Volume Profiles from last week, the week before, and year-to-date. Based on the highs from the last 2 weeks, I'm not counting the bulls out yet. Last week's Point of Control (POC) was still up near the highs, making that double top/flat top ripe to be taken out, likely blowing a lot of stoplosses. For this reason, I'm setting my Pivot at 4420 and will continue to favor long trades above that level, and shorts below. From a market structure standpoint, last week's "pullback" (if we can even call it that) was actually healthy. We filled several single prints and flushed out some volume between 4440-4475, which is technically a good thing to see if you're bullish...it's rarely sustainable when the market booms upward with incredible velocity & low participation. I've been speculating for a few weeks that 4420 could act as the new "home" for price as we're building more and more volume out near that level, producing a new High Volume Node (HVN) on the YTD Profile. Again, with that in mind I'm setting my Pivot there to give the buyers the benefit of the doubt. It's very likely much of Wall St. was on vacation last week for the holiday, so I'd like to see what they have to say about things this coming week before throwing my hat in with the bears.
Besides 4420, 4433 remains important to me as well, producing several textbook bounces recently. The 20DMA currently sits near 4424 (back-adjusted), so look for that to provide extra confluence should we return. Otherwise, I'm still watching 4494 for breakout longs above.
Given the mixed signals this week, I see no reason to do anything fancy or aggressive. I plan to stick to the 30min Opening Range while honoring the Weekly Pivot. I hope you have a great trading week, thanks for reading!
Horse