Market Prep: Week of November 22, 2021

Hey Traders! Welcome back and congrats on surviving OpEx week, which happened to be quite uneventful compared to the OpEx weeks in recent history.

I want to start by acknowledging that I was wrong about the 2 things I was looking for last week: Volatility and Volume. ...we didn't really see either one to the degree I expected. Yes, there were the typical violent intraday swings that we're used to seeing during OpEx weeks, but none of those moves were able to build any lasting momentum. I primarily traded NQ_F last week and did quite well on a few breakout plays, but ES_F trades were few and far between. Before we dive into the granular details, let's take a moment to zoom out. There were a couple interesting things from last week that I want to acknowledge. I'm not sure if you follow @SqueezeMetrics' work or not, but there's potentially some interesting things happening from a dealer positioning perspective that I'll be watching over the next couple weeks for clues as to whether we're going to get the usual "Holiday Market Ramp" this year or not. (NOTE: I'm not going to get into the specifics of Squeeze's work, but visit www.squeezemetrics.com to learn more) To summarize at a very high-level: We went into OpEx Friday printing one of the largest GEX numbers ever, which can (to use Squeeze's words) "acts as a brake on market price." So why is this interesting? Well let's combine that information with another commonly looked at "macro-ish" chart:

Here we have the Percent of Stocks Above the 20-Day Average ($MMTW), a common indicator of sorts that I look at from a longer-term perspective. We're seeing breadth take a nose dive, yet the S&P500 isn't really budging...this speaks to the strength of the few biggest names "holding up" the indices while most of the individual names have pulled back. With the GEX level relaxing post OpEx and MMTW nose-diving, this puts me on high alert for a potential pullback and moonshot into the end of the year, which would fit with the historical seasonality narrative. Timing this is very difficult. But I need to acknowledge that the setup is there. In my opinion, all eyes should be on the big names this week. Let's take Apple for example:

From a technical perspective, Apple is either about to reject this top S/R Line big time or breakout and rip the skin off your face. Sporting a insanely bullish 0.305 Put/Call Ratio on Friday, "investors" (aka gamblers) really liked Apple this past week lol. In addition to Big Cap Tech, we also need to watch Small Caps here too:

The Russell 2000 finally got clobbered this week (and I loved every second of it), but it's approaching a logical backtest zone where the initial breakout took place. If speculators are truly bullish RTY, I'd expect them to step in and defend soon. Long story short, there's nothing here that says we aren't primed for the typical bullish insanity headed into the holidays. ENTER STAGE RIGHT: 24/5 VIX Options and the potential for Jerome Powell's exit. I am NOT going to speculate on the market impact from these 2 wild card topics, I simply want to acknowledge that they exist and should not be ignored. I've read compelling arguments on the Bull and Bear sides for the impacts that both of these new developments could have on the market and truthfully I have no idea what will happen. All I know is that we're poised for the typical holiday pullback and rally, but there's a couple legitimate concerns on the horizon, and as a day trader that means caution and tighter stops. I might be overreacting, but sometimes the biggest pain comes when everything looks "too good to be true." So even though I was slinging NQ_F like a beast last week, I will not be attempting to be the first person to BTFD this week until more is known about Biden's decision on Powell. As usual, I'm okay with being a Silver Medalist: Second to get into the trade and second to get out.

There's one other thing to point out from last week that's interesting:

There's a little bit of "buzz" around someone sizable plowing into SPX 4000 Puts on Friday. This is pure speculation, so take it with a grain of salt, but there is an usually amount of activity at a strike so far away from current price. The rumors are this individual rolled profits from bullish calendar sales into this position, but regardless, it's worth continuing to watch Volume/OI at that strike. Ok, so let's dive a little deeper into the charts and find some key levels to trade around.

ES_F established a nice little range of overlapping 30min Opening Ranges this week that I will be using to gauge breakout trades. I called out 4708 in last week's Market Prep, and that's still the level I'm looking for on the Bull side. We did see a very strong rejection above that level when the Pajama Traders drank too much and tried to price in the $1.9T Social Spending Bill. 4680 remains a VERY key area for me as well, but given the support it's shown the market over the past few weeks, I'd rather wait until a break of 4675 to take a meaningful breakout short trade.

I am also very conscious of the iceberg at 4685, one of the largest we've seen in a long time. In the past, when we've seen very large -Delta icebergs like this, the market has leaned against it for very large rallies. Again, this supports our Holiday Rally theory, but we still need to be careful if these accumulators choose to dump their position if they're feeling too much pain...another reason why I'll be waiting until 4675 or lower for serious shorts...I'm giving them the benefit of the doubt to defend their recent large absorption.

If they take some heat, I'll still be watching the 20 Daily Moving Average for support, which has now moved up to ~4650-60 (another key level from the recent past).

Another reason to be watching that 20DMA is the interested buyers at 4650. This cluster of resting limit orders isn't that significant yet, but it's worth watching this week to see if it grows in size. The resting order that IS significant (in my opinion) is the one at 4750. There was also some heavy options activity at the strike this week as well. So again, over 4708 I'm definitely looking for a pit stop at 4725 then to finish the trip to 4750.

Now to get super granular, ES_F left some shelves in its wake last week. I've often referred these as "bearish shelves" and I've heard feedback from some of you that this is confusing. Let me explain: These shelves were created due to bullish support, but the reason I call them "bearish" is in anticipation of what happens when those levels are lost. If you're a buyer that's defending, defending, defending and you eventually find yourself taking too much heat, what do you do? You dump. You shit the bed like my beloved Michigan State did against Ohio State this weekend. In summary, they are scary places to initiate new trades from. Let the warriors battle it out. If the shelves are lost you often see a violent move down then a quick pullback to test the shelf from the underside. There's trades to be made there, but not RIGHT at the shelf itself...that's dangerous in my opinion. Ok, so my pivot for the week on ES_F will be 4681, sticking close to that key level from the past couple of weeks.

From a S/R Level perspective, we're shaping up to see some strong confluence at 4660 if we get that low. Those bigger white lines on the chart are longer-term, more important levels (see below):

It's also important to note that the market will be closed on Thanksgiving this week. For what it's worth, nothing too exciting usually happens during holiday weeks. The "big boys" that actually move the markets don't like to work too hard during the holidays. They typically press play on the DontLetTheMarketCrash.exe algorithm and go stuff themselves with Turkey & Gravy. Sure would be fun to see that plan get blown to hell though, right? Key Extension Levels on My Charts: 4780

4751.75

4667

4652.75

4610.50

Good luck this week and thanks for being here, I sincerely appreciate it! I hope you all have a wonderful holiday week and get a chance to spend time with family and friends.

-Horse