Greetings! Feels good to be back in action! I wasn't planning on trading much last week anyway, but I didn't plan on getting violently ill. A nasty stomach virus ravaged our household, but thankfully it looks like I puked more than the market did. Despite the doom and gloom, the S&P500 gained 1.39% last week amidst extreme uncertainty from the banking sector.
Uncertainty continues to be the key word for the stock market as the S&P500 is currently trading at the same price it was back in May of 2022. If you're new to my weekly Market Prep, my goal isn't to forecast where we're headed long-term, but instead I aim to find a pivot point to guide my intraday sentiment as well as levels in the ES Futures where price is likely to have a tradable reaction. Let's dig in to some charts!
Starting from a Daily Candlestick perspective, ES is still wedged between 2 critical trendlines. As a day trader, I have to respect any momentum break above or below these lines. It's very rare to see such incredible confluence between the key Moving Averages, and we can see price is currently hanging out between the 20DMA (Blue), the 200DMA (Red), and the 100DMA (Orange). If the current bullish momentum holds this week, I'm looking for a test of the 50DMA at 4050-4055.
"Bullish Momentum? What are you talking about, Horse?"
I know. Nobody really has the upper-hand right now, but I'm seeing slightly more bullish momentum than bearish at the moment:
Friday's slow-grind pump flipped @stephanharlinmd's Momentum Indicator bullish, and we can see Implied Volatility desperately trying to drop...not an easy task while the world wonders what's next for the banks. Regardless, it is what it is and the buyers are currently trying to keep price afloat.
The Traderade VIX3M Model also flipped long this week, which caught my attention. It's worth noting this indicator makes no attempt to find tops and bottoms, but rather it seems to catch the "meat" of the move over time, outperforming Buy & Hold returns for the S&P500 by nearly 5x since the start of 2020. It's not perfect, but it does give a decent read in terms of which side currently has the "wind at their back."
The Nasdaq continues its outperformance as well, holding the critical 12275 support and marching towards 13250 resistance.
Everybody's least favorite index, The Russell 2000, also had a bullish bounce off support on Friday. (Every candle is a red candle if you're trading the Russell)
So the charts seem to validate the Bulls currently have the ball and it's theirs to fumble...now the question is "What level would indicate a fumble?"
Looking at the 1hr ES Range Chart above, I wouldn't be interested in shorting this market until price is back under 3950 or the new shorter-term trendline shown above. I'd also be interested in longs above the 50DMA near 4055, targeting the prior Chop Zone bottom at 4136. As long as ES remains between 3995-4053, I don't plan to do much as price action is likely to be choppy and frustrating as a day trader. However, there's one exception that would get my attention:
The "Bullish Party" could get started a little earlier than 4055...I think 4040 is now important due to the bullish volume shelf created as the market awaited FOMC. Above that level and some upside acceleration is likely, especially with a pocket of single prints lurking between 4076.50 and 4085.
I'm not seeing too much else to analyze from the weekly Volume Profiles other than a slightly bullish shift in the Point of Control (POC) from 2 weeks ago to last week. The YTD POC is still sitting at 4025, which we can think about as a "Safety Zone" for price to fluctuate around.
The messy chart above shows us Delta by Price for the year so far. The main takeaway for me is that we continue to see large institutional iceberging between 3950-4040, so it's rather pointless to have a strong directional bias in that zone considering we have no idea which side (buyers or sellers) will ultimately win the battle for this area. If I put my Tin Foil Hat on for a moment, I'm not even entirely sure either side wants to win the battle as there's fortunes to be made for dealers selling short-dated options premium to intraday traders in this area...but I digress. I am indeed continuing to watch 0DTE options activity for daily directional clues in my trading.
Because of the choppy place ES is currently in, I'll be watching other markets this week for trading opportunities. I'm specifically interested in oil/energy:
I personally like the look of the daily XLE chart above. My favorite trading setups are those that will tell me if I'm right or wrong quickly...there's nothing worse than having capital tied up in a floundering position that you've recently put on. With XLE, we have some tradable confluence of trendlines supporting price. Put this one on your radar this week.
I'll be using 3985 as my Weekly Pivot on ES this week. Other key levels/extensions include:
4162: +1 Fib Extension from Last Week's Range
4118: +0.75 Fib Extension from Last Week's Range
4073.75: Last Week's Highs
4030: +0.25 Fib Extension from Last Week's Range
3897.25: -0.5 Fib Extension from Last Week's Range + 3900 0DTE Magnet
3853.25: -0.75 Fib Extension from Last Week's Range + Likely Rebid Area and 0DTE Magnet
3809: -1 Fib Extension from Last Week's Range
3632.50: -2 Fib Extension from Last Week's Range (...it could happen)
I hope you all have a great trading week ahead, watch out for the plethora of Fed Speakers and decreasing intraday liquidity this week. In my opinion, it's still an ideal time to be laying low or trading small until bond volatility drops or we get some more certainty about the banking situation.
Happy Trading,
Horse