Let me start by saying this is not an easy Market Prep to write. I've spent a lot of time this weekend trying to formulate my own thesis as to what is happening in the markets to develop a plan for myself. If you've done any reading this weekend, you'll probably notice that opinions are mixed (what's new, right?). So I'm going to save you the macro bullshit and stick to what I know best: Technical Analysis. I love that the markets are a never-ending game of 3D Chess...but that doesn't always mean I want to play the game. Sometimes, the best we can do it default to historical data/patterns and stick to our strategy...even if that means being wrong. So with that said, I will be looking to BTFD this week. I'm fully prepared to deal with the trolling if I'm wrong, and after you hear my reasonings I hope you'll understand that my plan is based on logical conclusions using data/info that is available to me as a retail trader. That's the best that I can do. So to keep this short, let's review what we know to be true based on information available to us this week:
The market started selling off after the Powell announcement (quite the head-fake wasn't it?!).
US Markets we closed Thanksgiving + Futures closed early last week, and selling continued while we stuffed ourselves with Turkey.
Headlines were mostly centered around the Omicron Covid variant.
Yes, other stuff can be added to that list, but I'm keeping this succinct and focused before we dive into the technicals. "Ok Horse, so what makes you interested in buying the dip?" Well, there's a few more things of interest that we can add to that list above:
The DIX and GEX from www.squeezemetrics.com are both positioned incredibly bullish, and if you research past performance when they are positioned this way, we tend to bounce back (might not be Monday, but more on that later).
More information/statements have come out over the weekend about Omicron, indicating it may not be the same degree of severity as the market was possibly pricing in (I am not a doctor, I'm just recapping the headlines).
Carl Fucking Icahn is selling Puts again. (See: SPX 3800 strike activity)
I am not qualified to explain the three points listed above in detail, but I would strongly encourage you to do your own research and come to your own conclusions about these matters. To me, they are each significant in their own right. Like I said, I don't want to play the 3D Chess game right now of "Well maybe the Fed tapers early if Omicron isn't that bad, or maybe they never taper if it is bad and supply chains are still screwed" yada yada yada...I'll save that debate for the macro gang on Twitter. I simply wanted to boil down what we KNOW and try to translate that into a meaningful plan for myself.
I'm a small fish in a big pond and we've established a long time ago that options & dealer positioning essentially drive our current market regime. For me to bet on that changing all of the sudden while the US took a timeout to celebrate Thanksgiving seems illogical. I have no sound reasoning to come to that conclusion. So if I'm wrong and we don't see a bounce this week (setting up the seasonal "Santa Rally") well then so be it...Carl Icahn, numerous dealers, and myself will all be wrong.
Ok, rant over. Let's dig into the charts and what I'm looking at this week.
Here's a SPY chart some of you may remember. I stopped posting it on Twitter because it does contain some proprietary information and, well, fuck the trolls. Although I can't reveal the inputs to these algorithms, I use it to guide my positioning and sentiment for swing trading. It gives me a foundation of "Situational Awareness" aka "Where is the market from a long-term perspective?" When either my Hedge or BTFD signal prints, I pay attention. (I need to say this again so it's absolutely clear: I am NOT a professional and this is NOT financial advice. I'm sharing my work as a retail trader, you're welcome to follow my journey but I am not advising you to follow my trades. Do your own research, especially at a critical juncture in the market like this.)
You'll notice my model isn't perfect. There was a noticeable lack of signals during the messy month of October. Welcome to the world of financial modeling...nothing always works. Regardless, I still value it as a guide and it's definitely supporting my own thesis heading into this week.
Again, from a long-term perspective (daily chart), ES_F finally lost that key support level we talked about before (the lower bold white line). When the market loses critical support levels, I'm not in a hurry to try and catch the absolute bottom, that's a fools game; however, I am interested in marking areas where I think the market should slow down or bounce. For me, all signs point to 4520-4525 being very important if we see more downside this week.
On NQ_F, we're actually at a support level right now at ~16000 (not shown on the chart above), but if we see more downside I'm looking considerably lower from a Support/Resistance Perspective before I'd be salivating over longs. Apologies, due to the sloping lines and time, there's no hard numbers to give here but I'll definitely be watching the logarithmic support level from the Great Financial Crisis (green line).
I don't have a crystal ball, I don't know what will happen this week, but I do know that we'll be trading a market in motion, and I'll be sizing accordingly until we're back in a "safe zone," such as this one:
I had this light grey box drawn on my chart before Friday's trading started and was legitimately shocked we didn't touch the bottom on this zone during the 30min Opening Range. That was turbo bearish to me. You can see how close the wick got.. If/when we bounce, I will be looking for longs above 4640-45 now for the re-entry into this established range, with some resistance at 4675. Based on how ES_F has traded in similar situations in the past, it is entirely likely we could blast through this entire zone if we re-enter it, meaning I am STILL interested in longs above 4708 as well:
For me, the safest approach to trading a market that's selling off is to let the sellers do their thing and don't waste capital trying to find a bottom. I plan to do exactly that. I am totally okay missing out on 4XXX - 4640 worth of points in order to know that the selloff is over and we're probably headed right back up. The only exception for me will be that 4520-25 level I mentioned, I am still anticipating support there:
Even if we get that low, I'll still be looking for icebergs to show up from the institutional players confirming that we're bottoming.
Again...there's no special prize for catching a falling knife. Nobody is gonna give you a medal or gently pat your head. Be patient with a market like this one, we all know the party will end eventually.
Despite the selling last week, I was encouraged to see some serious Relative Volume on Friday. The chart above is comparing against the past 50 days of volume on ES_F, so when I see EVERY bar as bright blue during the trading session, it's significant and a turning point is likely being initiated. Now, I mentioned earlier that the bounce may not be Monday...that's because when we get a Relative Volume print like this, there's usually more to come. My ideal "dream-state" market activity this week would be to see the selling continue right away down to 4520ish then let the face ripper commence. We'll see what the Pajama Traders have to say about it tonight lol.
The midpoint pivot this week is 4659.25, but I will be using 4640 as my Weekly Pivot. Key Extension Levels:
4822 (if things get real crazy)
4781.25
4740
4700 (obviously)
4618.50
4537
4496.25
4333 (if things get REAL nasty)
Good luck this week, friends. Remember, be patient. You never have to trade. Sometimes sitting out and preserving your stack of chips at the casino is the smartest strategy. Horse