Happy Sunday, everyone! I hope you've all had a relaxing weekend. We've had a bunch of family in town this weekend for a memorial service and it's been great to spend some time with them and take a break from trading. I also had a chance to watch the final round of The Open championship today; I won't bore you with golf-talk but it was an absolutely amazing finish!
This week's Market Prep will short and sweet (again). I promise I'm not being lazy, it's just that not much has really changed from a Technical Analysis (TA) perspective on the S&P500 and my levels from last week are still valid. No sense changing a good plan. If you haven't read it, check it out here: https://www.traderade.com/post/market-prep-week-of-july-11-2022
While it's true the TA hasn't really changed, a few things have changed: Mainly the fact that we made it through some rough CPI & PPI prints, a slew of mind-numbingly dumb "FEDTalks", and another massive Options Expiration...and the market only closed down -0.93% for the week.
A lot can happen in a week, but it's pretty rare to see significant downturns after a bullish hammer candle, not to mention a cluster of them on a weekly chart. Obviously this is incredibly basic TA and not very reliable on its own, but it does make you wonder how much bad news the market actually did price in last week? Personally, I don't think we're done with ES_F 4000 and there's a chance the bulls could pull it off this week. Let me explain.
There are "quiet" weeks and "noisy" weeks...last week was a noisy week. We had seemingly nonstop speeches from members of the Federal Reserve, OpEx, and some very important inflation data. Besides more earnings, the week ahead looks relatively quiet. I don't know how you trade, but I personally don't look for shorts during a quiet week in the middle of the summer. You know what they say, "Never short a dull market..."
In a nutshell, I'm leaning bullish this week with one incredibly important caveat: ES_F 3875.
If you remember from last week's Market Prep, 3875 was the level to open up downside continuation, giving us the confidence to lean into shorts. Well, I think that same level is even more important now. The ol' adage "Support becomes Resistance" works on all timeframes, and we're likely to see it play out with 3875. If the buyers reclaim that level I will be in "Buy the Dip" mode looking for a low volume summer grind up to 4000. 3922 is still the top of that "Neutral Zone" from last week, and I still believe we'll see price accelerate even faster above that level. Let me show you a couple reasons why:
Looking at July Delta by Price for July, we can see a noticeable lack of aggression around 3875, our key level. Overhead, there's a cluster of aggressive sellers that were hanging out in the "Bear Cave"...they are likely to defend their positions if they initiated them there. Again, this reinforces my thesis that 3875 is a critical pivot. If price pushes above that Bear Cave, what's likely to happen? You guessed it: we'll probably see those sellers cover some contracts forcing price to accelerate upward. It's just a thesis...but it's a reasonable one.
Remember the wedge we talked about last week? I still think it's valid despite the top not being solidified. To me, there's strong potential for a nice confluence setup here between that 3922 Top-of-Range level and this wedge. I'm looking for price to run up to the top of that wedge, pull back a little (aka battle around 3900-3905) and burst through to the upside, making for a relatively painless trip to 4000*.
*This is an example of visualization. I don't have a crystal ball, but I value visualizing how things might play out so I can be prepared to take the trade when I see it and not waste time trying to figure out what's likely to happen when I'm in the heat of the moment.
When we take a look at the Daily Ichimoku Chart above, we can see more evidence of looming confluence, where a bunch of key levels/indicators align, making for a pivotal decision point for the market. The top of that declining channel is as clear of a trend line as you'll get in trading. If it's not on your chart I strongly suggest adding it. Again, a move above that line that clears 3875 & 3922 brings 4000 into play quickly, in my opinion:
In summary, I'm keeping the same levels from last week but moving my weekly pivot to 3812, favoring longs above and shorts below. This pivot roughly represents the mid from last week's range, while flipping to a bearish bias right before 3805, which I doubt will hold up the market again if it's tested.
Apologies for the short Market Prep this week, but I only write about what I see and not much has changed from last week. I hope everyone has a great trading week, we're really excited to announce some more developments here at Traderade this week and appreciate your continued support!
Happy Trading,
Horse