Happy Sunday everyone! I was going to make another video this week but we still don't have internet here in rural Michigan, so I'm going back to blog format this week. You'll also notice a couple spots on my charts where I'm not able to get candlestick data to load due to the outage, but I don't think it'll impact this week's analysis. If you're new to Traderade, welcome! The intention of this weekly post is to get my thoughts together for the trading week ahead, and attempt to identify points where I'm interested in engaging in the market from a day trading perspective. Let's dive into the charts!
Per last week's Market Prep Video, I was looking for the market to pull back and I'm happy to say we finally got some downside action. The market was getting rather overbought and I think the weakness we saw last week is a healthy thing in the long run if the "Bull Stampede" is to continue. Although the hedges I put on when my trusty ol' SPY Model (shown above) fired the signal underperformed due to Market Down/Vol Down, I am still short the market via swing trades and plan to stay that way as long as ES remains under 4420. From a longer term perspective, we're still in the thick of things:
The daily SPX chart above shows price almost in the middle of a significant long-term Support & Resistance zone. If you like big round numbers, then I think it's safe to say the market still remains in an uptrend until SPX is below 4300. I'd like to think this means we should definitely expect the bulls to defend this week, but truthfully I have no idea how the geopolitical news out of Russia will impact global markets. Considering I have absolutely zero qualifications to speculate knowledgably about the Russian coup, I will stick to Technical Analysis only and not insult your intelligence with baseless predictions (that's what FinTwit is for).
While I think SPX 4300 is a nice round number "Line in the Sand" for the stock market, let's zoom in a little more and get more specific for the day traders:
If we see more weakness this week, I don't think the real trouble starts until we lose 4318 on ES. On the 1hr ES Chart above, we can see the only real consolidation area on the screen is the zone from 4318 to 4343. This is noteworthy to me because I tend to define short-term consolidation zones based on consecutive overlapping Value Areas on a daily Volume Profile...we don't have much of that until 4318-4343, so it makes sense in my mind to call that area the nearest "Safe Zone" for price, meaning we are likely to balance there again if it comes. In the meantime, the pressure is on the buyers now as they attempt to defend 4380. Given the uptrend we are in from a daily chart perspective, I have to give the benefit of the doubt to the buyers to defend this week, so I'm placing my Weekly Pivot at 4382. If sellers can push below this level, I think we'll see a swift flush downward to fill in the single prints still under 4380, looking for a first bounce at the 20DMA near 4350.
Another reason I think it's fair to give the buyers the benefit of the doubt this week is the Weekly Volume Profile. Even though last week certainly felt bloody, the Volume Profile was actually relatively balanced, with the Point of Control (POC) remaining at 4420 like the week prior. I spoke about it last week, but if you're bullish you want to see more volume built around 4420, which would establish a new "home" for the S&P500, rather than the current YTD POC at 4184 (that's a long way down). With that said, I would be very surprised if price doesn't revisit 4420 at some point this week based on the last couple week's of auction activity.
I don't think it'll be easy for the bulls though, there's a few things working against them at the moment:
It's hard to look at this daily Ichimoku Cloud chart of DXY and not see a blatantly bullish setup. If Dollar bulls can push DXY over the Cloud I think it could set up the next bull run for the USD. Even though the negative correlation between ES and DXY has weakened a bit, I think a bid in the Dollar would still put significant pressure on the equity indices. All eyes on the DXY this week.
Breadth is also not heading in the right direction for bulls. To be fair, the breadth readings I care most about (% of Stocks above 20DMA in Blue, % of Stocks above 200DMA in Red) are still both rather neutral. I wouldn't consider this tradeable information, but more something to keep an eye on throughout the week.
On the other hand, one thing that might be in favor of the bulls is the recent reset in Relative Volatility. My short thesis last week panned out well, but if I'm being honest Relative Vol dropped fast, and when this happened back in August of 2022, it lead to some stiff intraday bullish rallies before the selloff continued.
Besides the chart above, my analysis this week will not include the VIX because there's too much uncertainty surrounding it for me to have any confidence. For example, I mentioned in the Discord last week I wanted to short intraday when the VIX hit the 12s, and while that turned out to be a great trade I'm not sure it's sustainable to think/trade that way this week: The more I think about it, the more I think it's entirely possible that the VIX is still technically overpriced at this moment in time. Yes...you read that correctly. With more and more options volume flowing to extremely short dated expiries and closer to the money strikes, we are seeing the VIX compressed in an unprecedented way...considering I'm not a Volatility Quant, this means I have no business trying to use it as a trading input this week. I'm better off trying to learn more from the experts about what is happening to volatility rather than pretending to be an expert (Again, I'll leave that to FinTwit).
When weird geopolitical events happen, I tend to look for trades outside of the S&P500 even though that's my "Bread & Butter." In my opinion, the best places to look for trades during armed conflict uncertainty are Gold and Oil. Let's talk Gold for a minute:
My newest indicator printed a bullish exhaustion signal on Friday for Gold, which has my attention. The 200DMA is lurking about 30pts below price at the moment, which would make for a natural bounce spot near 1900. Dollar Up, Gold Up is a low-probability trade in my experience, but this week could be just weird enough to produce it. Regardless, it's worth watching Gold for bullish opportunities this week.
Finally, the chart above contains the 0.25 increment Fib Levels based on last week's trading range. It's worth noting 4420 is very close to the Mid (4421.75...wink, wink) and my Weekly Pivot coincides with the -0.5 Retrace at 4381.50. In my experience, these levels tend to work quite well as natural areas of Support & Resistance, often producing great bounces or rejections.
As always, be safe out there this week. Powell speaks again this week and things could get a bit sloppy if the weekend events in Russia spook the markets. Manage risk and have fun!
Happy Trading,
Horse