Happy (Early) Independence Day, Traderaders! I sincerely hope everyone is able to enjoy the long weekend spending time with friends & family.
Just like the trading week ahead of us, my Market Prep will be short and sweet, mainly because not much happened last week...again. It's getting weird saying that so many times, but the charts don't lie: The S&P500 is clearly struggling to make up its mind. As day traders, that's not necessarily a bad thing, we've had some great technical trading recently. However, it's becoming increasingly frustrating for swing traders and investors. Many of the levels and setups from last week's Market Prep (https://www.traderade.com/post/market-prep-week-of-june-27-2022) are still valid, but I'll try to add a few more thoughts for the week ahead.
Zooming out, we can see on a daily chart the S&P500 has been stuck in a downward channel, and if you tilt your head slightly it's clear to see we're currently right in the middle of that channel. So (once again), I have no strong directional bias for the week ahead. Truthfully, I wish I did because it's getting old constantly saying "be careful out there!" but in actuality that's the best advice I can give right now. The macro picture is quite dreary, but in the short term there may be some hope for the bulls. Allow me to explain with some charts.
(Before we leave the chart above, note the confluence between the green 50DMA and the top of the channel...I can't give an exact level for that because the trendline is dynamic, but expect resistance if/when we get there.)
From a range perspective, the bulls held off the bears into the end of last week, closing above the Balance Zone we've been recently trading around. There's a couple interesting things to note about the 1hr ES_F Chart above: 1.) 3834 is becoming important. I added it to my charts last week and it turned out to be a great level to trade around; however, I think it's worthy of being used as a Weekly Pivot now. 2.) When we look at the last 2 weeks, the buyers stepped in with strong Relative Volume both times we dipped. In my mind, despite the macro outlook this is considered a "win" for the buyers and definitely favors bullish continuation. You can also see on the chart why 3760 was such an excellent Weekly Pivot, and I think it will continue to be in the near future:
Before we get too excited about bullish breakouts, let's zoom out and look at the Weekly Volume Profiles from the last 2 weeks...they don't paint a bullish picture. This chart shows us two clear bearish volume shelves: One with the POC at 3825 and one with the POC at 3760ish. When we add the blue trend line in (which isn't perfect, I know), it gives us beautiful confluence providing confidence to short under 3760. On the other hand, if the buyers continue to push I think there's a great setup from 3858-3875. Based on the very low volume from the past 2 weeks in that range, I see no reason why price wouldn't again accelerate very quickly through that zone to the upside, likely cooling off at 3900-3920.
If the sellers do step in and we're able to short under 3760, my first downside target would be 3725, erasing the untested Opening Price print just below that level.
While I still think 3805 is important, we kinda exhausted that level last week, so I'm now looking at 3840 as my breakout long level. There's a couple reasons for that, but one big reason is this Delta by Price chart for June. If you've been watching, sellers have been aggressively (understatement) selling into 3825; but, the bulls seem quite content soaking up those contracts, and we can even see the bulls aggressively buying in the 3760-3840 range. In my mind, this is the battleground of the summer. A break from this range will likely have legs. I've already covered why I think shorts below 3760 will have strength, so let's humor ourselves and talk about why a bullish breakout could have some duration.
One of the gages I use for position sizing is RSI +50 on a daily timeframe. We can see from the chart above that we're not there yet...but we're really close. It doesn't take a quant to realize that RSI +50 is an extremely favorable environment for bullish traders (just look at the blue candles). Be patient, we're close.
On the Ichimoku Chart above, we can also see the buyers reclaimed the Conversion Line, making the Base Line at 3920 another extremely important level (especially since it was support and turned into resistance). 4000 is a likely chop area, but also a very key psychological level for the market. As of right now, 4000 would put us just above the downward trendline, right at the Ichimoku Cloud, and right at the incredibly important 50 Daily Moving Average...needless to say 4000 is important and I'm speculating that it'll have a magnetic effect via trader psychology, analysts "estimates", and options positioning. Also, it's a new quarter and the start of the second half of one of the worst years on record...I'm not likely to fade bullish price action between 3840 and 4000, but that's just me.
For this week, I'll be using 3834 as my Weekly Pivot, which is slightly below the mid point of last week's trading range.
Other Key Levels/Extensions:
4054.50 (+1 Fib extension from last week's trading range...would expect resistance)
3950 (+0.5 Fib extension and the scene of 2 rejections)
3845.75 (mid from last week)
3793.50 (-0.5 Fib extension from last week, selling should accelerate if this doesn't hold)
3689
3637 (-1 Fib extension from last week, solid downside target on serious selling)
348050 & 3428.25 (would expect exhaustion from extreme selling)
As always, stay safe out there and enjoy the 4th of July! Thanks for reading, have a great week everyone!
Happy Trading,
Horse