[cracks knuckles] Where to begin?
A guess a better question would be "Where does it end?" Truthfully, I find it way harder to do Market Prep when we've been relentless ripping face. I keep scribbling key levels in my journal as the week progresses, but as we move laughably farther away from them I start to wonder why I bother or if we'll ever revisit those key levels. That said, I was looking for the market to "move" last week...and it did. From the opening bell lows on Monday, ES_F extended to ~2.7% at Friday's highs. If you're new to this game, this is the S&P500 we are talking about...that's a lot. According to Goldman Sachs, the average annual return of the S&P500 (over the past 10 years) is 13.6% annually. So far, year-to-date, we're almost double that at ~25%. It's been a helluva year...again.
After I sent that Tweet it was clear the reaction was "omg Horse is bearish." No...Horse is cautious. Full Transparency: I did book profits on some of my long-term equity positions this week. For example, in the chip sector, things like NVDA & AMD proved to be fantastic investments, and my Rule-of-Thumb is "If it's braggable, it's bookable." Yes I know "braggable" is not a word, but you get my point. Perspective is everything for me, and if you zoom out a little you simply have to acknowledge 2021 has been an incredible run for the stock market. (I also completely acknowledge that because I told you this, those 2 stocks will now probably rip face into the end of the year and you have full permission to troll me about it lol)
To me, things are starting to feel a bit stretched. But that doesn't mean I'm rushing to go short. "Stretched" is not a good indicator for that: Things can always stretch further (ask my post-pandemic pants). What this means for me is that I'll simply be trading less size and more selective about my trades. I made a lot of trades early last week because per the plan I expected the market to move and volatility is great for a day trader...I won't be doing that this week. Let me explain why: 1.) Jerome Powell speaks twice this week. Granted, the topics aren't "market" focused (e.g. Diversity & Inclusion and Gender & The Economy); but nevertheless, the news-driven algos will still likely hunt & kill your stoplosses while he's speaking.
2.) Inflation data on Tuesday & Wednesday could make things get quite volatile. When I consider these 2 things, all I see is a recipe for my stops to get crushed. So even though I like trading volatility, I'm sizing down big time this week and using wider stops for any trade I'm in. Hopefully you're noticing a pattern with my weekly posts: I am naturally a cautious trader and I focus on trading for the long-haul...managing risk for me is about more than "How many ticks am I risking on this trade?" That said, it's easy to do the math here: I'm a cautious trader + I'm growing weary of ES_F's relentless ripping = I'm planning to trade like a spineless wuss. I'm okay with that.
Ok, time for some charts. As usual, let's start with the zoomed-out view then get more granular.
I posted the NQ log chart above in one of the Quickies, but let's add this ES chart to the picture:
In my opinion, both ES and NQ are at critical junctures (no surprise) from a Support/Resistance Perspective. But again, this doesn't mean "load the boat short" to me. Why? Because zooming out we see 2 "corrections" really: 1) the market corrected (pulled back in Sept/Oct) and then 2) corrected right back to the same bullish path. Probably better to look at ES_F from a "range" perspective:
I left the same white S/R Line on the chart, but adding a very basic range helps give us some more perspective. I think shorting (i.e. swing trade shorting) right here isn't the best play from a Risk/Reward setup, I'd rather wait until we get to the bottom of the green range and play for another break below. Instead, I'll be continuing to play both sides of the market, but still favoring a pullback.
The channel above is essentially the same from last week's Market Prep, I just changed the chart to a 10K Volume Chart to get it all to fit. I will be using these crayon channels to guide trade entries this week...if it ain't broke don't fix it.
Ok, so if we pullback then where will we pull back to? Well, I don't have a crystal ball, but there's a few key areas that I'll point out. But first, I think the market still has to make a decision at 4675-80. I view Low Volume Nodes (LVNs) as Decision Zones: We either reject them and go back to where we were (like when we tested this area on Friday) or we accept value below and return to previous High Volume Nodes (HVNs)
I could be totally wrong, but I still don't like that low on Friday. As someone that intraday scalps a lot, that's a "Poor Low" in my opinion. I think 4675-80 is still a valid Decision Zone. While we're on this 1min chart from Friday, I actually viewed the selling as quite constructive. We were due for it. There's still a tiny bit of liquidity at 4745 and we could definitely go grab that this week, but I would much rather see more constructive selling to cause the pullback we're looking for.
In terms of where we might head if we get a pullback, I don't think 4652 can be ignored. There was an insanely large iceberg formed there this past week indicating clear institutional positioning. I would be shocked if we didn't revisit that area without a battle ensuing. If there isn't a battle, I would definitely take note of that. Worth watching to see if whoever absorbed those ~16K ES_F lots dumps them without a fight...that would be pretty bearish to me and could indicate a turning point. Speaking of indicating a turning point, I also plan to be watching the Relative Volume indicator more than normal this week. Why? Because that often marks turning points as well:
Despite the Permabears' idiocy, low volume is not inherently bearish, it's actually quite bullish usually. But periods of HIGH relative volume are meaningful to me. The indicator above is setup to look at Relative Volume on ES with a 50-Day lookback period for comparison. You can see volume stepped in significantly during the end of September (again, no surprise) to absorb quite a bit of selling, marking a turning point. As we approach the next Options Expiration (OpEx) date of November 19th, I'll be watching to see high relative volume again, indicating another potential turning point...hopefully to the downside for a pullback. I might be premature here, as the OpEx pullbacks usually start the week of, not the week before, but after the recent run we've had who knows? Anything is possible. Long story short: Worth watching.
Essentially, what I'm looking for after the recently bullish run is for ES_F to establish a new temporary range. Since we know someone did some big positioning around 4652, if we get a pullback I wouldn't be shocked to see a new range established in that region.
Note: Watch out for that 4635-40 range though. I noted that level on a chart above. Incredibly thin volume and price will likely whip through that area again if retested. Could be free money if you're short there, but could also wreck you if you're long there.
Taking all of this into consideration, I will be using 4649 as my Weekly Pivot level, targeting 4743 & 4805.50 above pivot, and 4617.25, 4600, & 4586.50 below pivot.
Switching gears for a moment, I simply have to talk about the Russell 2000... Yes, the world has been waiting for the Small Cap Breakout for MONTHS now, and yes I longed the Russell (gross), but I'd like to see it pull back now, and unlike ES_F this is a trade I am actively interested in taking on the short side...because shorting the Russell is the best.
I'm not talking about "The Mother of all Short" trades here. But from a Volume Profile perspective, I think it's entirely reasonable that RTY will pullback to 2365-70. It could go lower (see below) but this thing is bullish as hell and shorting it aggressively is playing with fire.
If it pulls back, there's some decent sized positioning at 2340, but if we got back to that level I'd be more interested in playing it long again, looking for the bulls to defend the 2310 area, where I believe the long-anticipated breakout began. Even though the chart above is very messy on the right-hand side, you can see the red clusters on top, indicating from a Delta by Price perspective the sellers are finally starting to step in. From a Volume Profile perspective, ol Rusty is not done on the bull-side: I'd much rather see a clean taper up to 2500 before attempting any long-term swing shorts on this pile of shit...but that's just me.
Whatever happens this week, I hope you trade well and stay safe. I appreciate you being here and hopefully you find these posts helpful...even if that means fading me :)
-Horse