Good evening traders, hope everyone had a great weekend. Let's dig in to the week ahead. It's good practice to start your prep by zooming out: Where are we and where might we be headed?
Whether you're into crayon lines or not, it's pretty easy to see that SPX has lost a significant Support/Resistance Level, established after the Covid Crash. The big question now is have we lost it for a while or are we headed back before year end? With last Friday being the 1st of a new month and quarter, I was hoping to get some directional clues left by the "big boys" in the options market. Long story short, while there were some oddities that hit the book...
...I'm still waiting for more clarity. However, it is clear people are still heavily hedged, and the question of how long will they stay hedged remains to be answered. Considering cyclical flows and October's reputation, it wouldn't surprise me in the least to see hedges remain on, Puts stay pricey, and VIX refusing to die...all of which leads me to my big question for you: WHO'S READY TO RANGE TRADE?!
That's right friends, if you're interested in participating in the markets I suggest you get comfy with flipping and reversing because I have a feeling range trading will be the strategy for a bit. "Horse, why do you think that?" I'm glad you asked...
When I look at the above chart plotting ES_F Delta by Price, there's a notable lack of institutional engagement in this range. Translation: Nobody likes it here. However, we're near some key levels that are likely to produce some fun battles. You can see from the bottom of that range, buyers stepped in Friday to defend that previous large Buy Delta iceberg at 4250...the question now is what will the sellers do when we approach 4390? Will they defend that large Sell Delta wall? If the bulls reclaim 4400 I think there's an area of interest to the upside:
Looking at the ES_F Volume by Price chart above, the most recent flush from 4425 to 4410 was once again ferocious. If we're headed back then I'd expect exactly the same thing: No interest in this area and we'll rip face through it to 4440. Why? Going back to August 17th, we've ripped through this area 6 times. When price get's here, nobody is interested in haggling. Mark that area on your chart for easy money. If the sellers "finish what they've started" then I'll obviously be watching ES_F 4300 as a painfully obvious area to flush out a new High Volume Node from a longer-term perspective. Remember, the market isn't clever...it likes round numbers (and so do Put Option buyers...)
Getting more granular now, I'm watching 4365.75 as my pivot level for the coming week. But since we've already established that there's likely to be some battles aka Range Trading, I'm not going to just ape into longs/shorts right at the pivot. Patience is a virtue, degens. I'd be looking for long scalps above 4389.25 and shorts below 4346.25.
Friday's 30min Opening Range did not overlap with the previous days', indicating a market in motion. There's money to be made in this volatility, but trade smart. I'm personally planning to trade less contracts until we break from this "No Man's Land" of 4260-4380. I caught a banger long on Friday and have no interest in giving any chips back until I have a better idea of where we're headed. Remember, if the big boys don't seem to know where we're going, why should you? Size down, let the setups come to you, and trade like you actually plan on staying in this game for a while. There's periods where it's okay to be timid...this is one of them. -Horse