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Market Prep: Week of Oct. 18, 2021

Updated: Nov 3, 2021

I gotta be honest: I hate doing market prep after an OpEx Friday. With the incredible amount of flows driven by dealer positioning, even my best laid plans tend to get destroyed by the time globex opens on Sunday night. Nevertheless, there's still some interesting levels for us to trade around this week so let's dig in...

If we've learned anything since the start of the pandemic, it's that we're in an Options-driven market. So let's start by taking a peek from a high-level at the crucial areas:

Options Data from 10/15/21 in Thinkorswim

I primarily trade ES_F, so understanding what's happening on the SPY and SPX options chains is incredibly important to me. I'm going to keep this simple: There's a boatload of downside activity on SPY 440 and SPX 4400 and an absolute mountain of volume & open interest in SPY 450 and SPX 4500 (see below).

Options Data from 10/15/21 in Thinkorswim

When we combine that information with what we've already observed on the Limit Order Book (see below), a trip to 4500 seems incredibly likely.

Image from Bookmap Pro

"Yeah but Horse we just absolutely ripped face upward at the end of the week, we can't keep going straight up, right?!?!"

Sure we can, but I'm with you: I would feel way more confident in taking long trades if we saw a pullback to at least 4430 first, preferably 4420.

Why? Because when you look at last week's Volume Profile, ES_F created 3 large shelves that I don't love:

These shelves are not indicative of a typical "balanced" auction. Obviously, they're quite lopsided. They are usually seen when price moves with intense velocity, and it makes sense to see them during an OpEx week when the large players are all trying to "maenage" in the same short window of time. During the afterglow, the market often comes to its senses and those areas of imbalance tend to be "filled in" or flushed out with volume on both sides of the High Volume Node (HVN). That said, we did finally move FAR away from my Weekly Pivot last week at 4345 and returning to fill out the shelf all the way at 4355-65 seems less and less likely. "Clean up on aisle 4430" still seems feasible though, and would restore some balance to the auction. If that happens, I'd LOVE to see the same happen for the shelf created EOD Friday and fill out the profile from 4470-4500.

Another Important Level:

ES_F Hourly Candles

From a Support/Resistance perspective, the main level I'm watching this week is ~4475, mainly because I'd love to see your stupid "hEaD aNd ShOuLDeR" charts thrown into the trash where they belong. Joking aside, it would be tough for me to even consider short trades above 4475-4476.50 because I'd bet if we reclaim that level it'll act as support going forward.

HOW we retake that level also matters to me. If you're interested in longs, I don't think you want to see ES_F flounder around 4475; a forceful rip through it followed by a pullback would be turbo bullish, in my opinion. A boy can dream.

ES_F Long-Term Delta by Price

Given everything we've covered so far in this post, 4385 will be my Weekly Pivot. Recent price action is undoubtedly bullish, but I'm very curious what happens during globex tonight after Friday's OpEx orgasm.

Besides the 2 SPY SPX option "walls", there's something else interesting that needs to be considered this week:

ES_F Daily Moving Averages

ES_F held the 100DMA beautifully (orange line) and popped the 50DMA (green line) harder than my pants' zipper watching Everyday Italian reruns.

Meanwhile, NQ_F now sits at an incredibly important junction, facing the same crossroads that ES_F faced...pop the 50DMA or pull back and chop between the 20 & 50DMAs for a while?

NQ_F Daily Moving Averages

This decision point for NQ_F is obviously a critical one for ES_F given the weight of tech in the index. I had a great trade riding NQ up after we busted through the 20DMA, anticipating we'd hit the 50DMA...but the question is what happens now?

In summary, I'm bullish until 4500-4540 but will be waiting to buy pullbacks rather than aping in right here at 4465.

But after 4500-4540? I'll be continuing to watch options positioning & measures of volatility and cross that road when we get there. It appears people are still hedged, likely due to October's reputation and cyclical seasonality in the markets. With that in mind, will it be different this time? The SPY chart below has similar vibes as this time last year, so my eyes will be on what happens when we hit SPY 450...if we get back in that comfortable channel then the Bull Market marches on. If we reject it, the few remaining bears could emerge from hibernation (lazy f*cks) and bring us more downside fun.

Here's some levels on my charts if things get weird this week:

(I use these as potential resting places for price action, turning points, or "targets" (I hate that word))

ES_F Bullish Levels:





ES_F Bearish Levels:





Trade smart, Trade Fat.



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