Happy Sunday, Traderade friends! It feels good to be diving back into the charts after a couple days off, preparing for what could be a fun week of trading ahead (more on that later).
Before we get into the week ahead, let's do some quick review from last week because I think establishing context for the bigger picture is important.
The top of the No Trade Zone from last week's Market Prep provided a great opportunity for long trades on the retest of 3707 not once but twice. The strength from the buyers on Wednesday's market open was very telling, setting the bullish tone for the remainder of the week. Once 3805 established itself as a key level, we had a clear plan to ignore the chop under that level and wait for the bullish breakout over it...which we got in spades, blasting through 3900. I'm recapping this as a reminder that even though I personally experienced some frustrating stop-outs trying to catch the "big move," in the big picture it's still always preferable to lean into the breakout trades when they present themselves because the gains are worth the papercut pains.
Moving on to the week ahead: What's in store?
I'll tell you what's in store...an excessive amount of Fed speakers, or "FEDTalks" as I prefer to call them. What does that mean for us day traders? Well for me it means even smaller position sizes and wider stops on my trades because random Fed quotes are likely to move the markets this week. This isn't something I talk about much, but I think understanding what factors are likely to impact your trading style is an essential part of "knowing your instrument" and honing your craft.
Ever wonder what a room full of the most overpaid people on the planet looks like? Well this is your lucky week: The European Central Bank (ECB) is hosting a forum in Portugal this week featuring the most powerful central bankers from around the globe blowing enough hot air to power the entire Goodyear Blimp fleet. As a retail trader (and not a macro expert) I have no idea what things will be said this week; however, I do know the likelihood of their words adding some intraday volatility on ES_F is very high. Plan accordingly, my friends. Especially on Wednesday morning when Powell starts flapping his gums right before the opening bell rings. Last week I was content to hold intraday breakout positions longer...that won't be the case this week. Strategy wise, this is a "book it and run" kind of week for me with all the FEDTalks on deck.
Ok, let's dig in to the charts to look for price-action clues...
From a range perspective on the 1hr ES_F Chart we can see the clean move from the lower ranges to 3900. If the bulls continue their march, then 4000 becomes an obvious target for another gap fill. If Largarde & Powell give the buyers what they want to hear this week, I'd be looking for a pullback at 4080 at the bottom of an old trading range (4080 is also the bottom of value on a YTD Volume Profile, FYI). Personally, I don't think that's an unreasonable upside target, especially considering we're headed in to months' end and the end of the 1st half of a treacherous year. Another thing on the chart above to consider is the very high Relative Volume that we saw preceding this move up...yes it was OpEx but regardless: Big money stepped in pushing us off the lows. As day traders all we can do is trade momentum (unless you enjoy losing money), and large volume flows often mark turning points in momentum. It doesn't mean the momentum last forever and that was THE bottom, but it could mean a relief rally that's worth continuing to ride a bit further. From a pattern perspective, I'm looking for something like this:
Based on recent price action (and "recent" is important here because the fundamentals haven't changed that much) it wouldn't be unreasonable to see ES_F push back up to the Support/Resistance Line it's been fighting with for months. This would set up a battle with the 100DMA at ~4064 (now), which could align with the pullback at 4080 I'm anticipating. Either way, a close above the 20DMA and RSI +50 would be very constructive for buyers.
Another thing to take note of is simply the daily RTH volume profile shapes from the last week or so...they are not bearish. If you're eager to ride the momentum back downward, I would at least wait for a solid "b"-Shape profile before getting aggressively short because right now the bulls are completely content "P"-Shaping this market back upwards and they don't care what the permabears think (NOTE: "P"-Shaping is not a word but it should be).
While we're on this chart, let's look at some more detail:
Based on Friday's action, I'd be first looking for a rebid at 3860, retracing ~50% of the wildly aggressive move before I'd even consider shorting into strength. Yes last week I was looking for shorts right under 3900 and that play might work out again this coming week but truthfully I'm not interested in that risk from <3900 to 3860 this time around because the buyers have regained control. Thursday's globex session did leave an interesting shelf though, so I would be interested in scalping <3834 back to 3805 if the trade presents itself. Lastly, if the sellers step in this week I still think 3760 (my Weekly Pivot from last week) would make a good level to get short below and if that happens I'd be inclined to hold that through the previous "No Trade Zone"...I'd be shocked if 3707 held up again to save the market.
Just a quick side note: There's still an untested Opening Print at ~3955 and for whatever reason price action likes to gobble these up as it oscillates up and down. Worth marking on your chart for a decent place to take some profits if you catch an intraday long. On the 30min ES_F Chart above we can also see a couple of failed attempts from aggressive sellers. If you follow my work you know I like to use these aggressive Delta by Price prints as clues for potential turning points. Remember a couple months ago when we were talking about buyers not getting rewarded for their efforts? It's interesting to see sellers finally not getting reward for theirs. Curious to see how long that lasts or if we'll get Powell'd in the face this week by hawkish rhetoric.
Here's another chart in favor of the bulls. Once the breakout from 3805 was confirmed I couldn't help but think "I bet they are going to go close that gap now..." Well not only did they close the price gap, but they built volume above it. With these psychological setups (e.g. gap fills) it's not uncommon to see price quickly fill the gap and reverse, leaving a nice taper on the volume profile...well that's not what happened this time. I'd call this is a small win for the buyers.
Now before you start thinking "Oh no Horse has gone full bull..." let me reemphasize that I'm simply providing perspective based on the data/charts that I'm reviewing. Part of good trade preparation is performing an unbiased assessment of who currently has the upper-hand, the buyers or the sellers? I want to trade in the direction of the dominant auction participants, with the intention of riding their coattails. Does having the upper-hand always mean you win? Nope, look at Will Zalatoris losing the US Open last week to Matt Fitzpatrick (a national tragedy, in my opinion)...but trading is an odds game and you want the odds in your favor.
As we're approaching the end of the 1st half of the year, it's also worth taking a quick look at sector performance YTD. It's too early to call, but hindsight trading is for losers and we're starting to see energy roll over as, well, everything else perks up. In my view, this is another positive for the S&P500 bulls. Does it align with the Fed's hawkish pivot? Nope, but it could provide a nice backdrop for relief rallies.
Quick Side Note on the Nasdaq:
If you watched our Midweek Update Video last week I talked about the "easy" money from +12000 NQ_F to 12250. With about 100pts remaining on that momentum trade it's worth drawing a crayon line on your NQ_F chart at 12250 considering it's a likely spot for resistance if the bulls' stampede continues.
In conclusion, I think the bulls have the upper-hand going into this week but I'd personally be very careful heading into Powell on Wednesday morning and would lighten up on any long trades if the VIX hits 25.50 in the next couple of days. Lately, it seems like both the buyers and the sellers have a bad habit of going "too far too fast" when they reclaim the upper-hand, so be careful out there.
My Weekly Pivot will be 3790.75 this week.
Other key levels/extensions include:
4048.75 (+1 Fib extension based on last week's trading range)
3920 (anticipated resistance)
3855.25
3726.25
3661.75
3597.25
3532.75 (-1 Fib extension based on last week's range + likely confluence w/ long term S/R line on daily chart)
Happy Trading and have a great week!
Horse