Updates 2:00 PM EST - Friday 9/25/20

Friday's trade results and positioning for Monday
The current market condition is:   bearish headwinds for $SPX $NDX IWM still in effect.  But the headwinds have eased up today.   $SPX $NDX IWM have bounced as a result.

In the Signal Trades we went long today with TQQQ and TNA.   This was based on our assessment pre-market at 9:05 AM.   

We tightened the sell limit prices for both positions ahead of the weekend.   TNA has already gotten stopped out for a small gain.  We are waiting to collect our profit with TQQQ.

We don't want to hold positions long or short over the weekend.   This is a very choppy market.   $SPX $NDX IWM are oversold and are attempting to bounce.   But the bounce won't be a smooth and easy ride.   And it may be a short bounce.   Therefore the reward:risk ratio is not favorable for holding on to positions over the weekend.

$VIX $VXN are both approaching the zones where they are expected to anchor.   They may start anchoring later today, but $VIX $VXN are unlikely to pivot and rise substantially today.   They most likely will resume their rise early next week, but the timing for it is unclear right now.

We have temporarily removed our UVXY buy limit order.   We will analyze the data more for the weekend analysis.

Updates 9:05 AM EST - Friday 9/25/20

Pre-market
The current market condition is: bearish headwinds for $SPX $NDX IWM, but the headwinds are easing up today.   

Futures ES NQ RTY stabilized last night.   They did not drop below 9/24 lows.   This is likely to set up an attempt for futures as well as $SPX $NDX IWM to climb higher today, at least back to the highs of 9/24.

$VIX $VXN will most likely spend the day grinding downward to anchor at their 200-hour EMA lines.   

• $VIX will most likely anchor in the zone between 26.5 and 27.5.
• $VXN will most likely anchor in the zone between 34.5 and 35.5.

Given that today is Friday, if you plan to trade bullish positions, you may want to consider booking your profits when $VIX $VXN get down into these zones.   $VIX $VXN are likely to pivot upward once they have anchored themselves one more time.   When $VIX $VXN resume their rise, $SPX $NDX IWM will resume their drops.


Updates 11:40 PM EST - Thursday (for Friday 9/25/20)
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Updates 12:30 AM EST - Wednesday 9/23/20

$VXN

• $VXN 200-hour EMA green line is still rising.
• $VXN candles are descending towards its 200-hour EMA green line.

This means that the bearish headwinds for $NDX eased up a bit today.   This enabled $NDX to rise some amount.

However, as shown in its hourly chart below, $VXN is likely to anchor at the red rectangle near its 200-hour EMA.  If $VXN does, this is an anchor-to-rise pattern.   When $VXN resumes its rise, it means the bearish headwinds are accelerating, and $NDX will likely drop sharply.​

​$VIX
$VIX is forming the same pattern of ascension that it formed back in Feb, as shown on its daily chart below.   Despite spending the last 7 sessions futzing around,  $VIX has shown that it is clearly anchored in its red zone.   If it continues staying at this level, $VIX is capable of breaking out.   

Again, this would be very strong bearish headwinds for $SPX IWM.

Table of Support & Resistance Zones
We've​ updated the orange resistance zones and the green support zones to reflect the short swings within the down channels.

​Click here for our Signal Trades.   ​

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Updates 2:25 PM EST - Thursday 9/3/20

Short Term
We took partial profits with UVXY Position1 in our Signal Trades and raised the sell limit order for UVXY Position2.   The bet on volatility strategy that we wrote about since Wednesday has paid off nicely so far.   

We also lowered the buy limit orders for TQQQ (2 positions).   Why?

• Market breadth has gone very negative for NYSE & Nasdaq today.  This is bearish.
• Equity put/call ratio shot up from very low a few days ago to short-term high.   This is bearish.
• $VIX $VXN $VVIX are not done rising yet.   This is bearish.

There's a fair amount of profit taking happening for $SPX $NDX.   And there's a sense of mild panic in the air from the novice traders not used to a sudden steep market drop.  Selling begets selling.   When the market surges on a couple of key stocks such as AAPL and TSLA, it will dive on a couple of key stocks such as AAPL and TSLA too.

So we might as well try to take advantage of the situation and buy low.  

In the Signal Trades spreadsheet: 

• The sell order for UVXY at 27.5 got filled for 19.36% gain.

• We also placed additional buy orders for TQQQ.

Updates 10:21 AM EST - Thursday 9/3/20

Short Term
$SPX $NDX IWM are trying to find support from the morning gap down.

First level of support for $SPX $NDX IWM is the zone around the high of August 27.  

If $SPX $NDX IWM bounce from this level, their first level of resistance is this morning's high.

If $SPX $NDX IWM fail to bounce from here, they may be on their way to drop sharply down to their green support zones.   This most likely won't happen today, but the mood has changed in the short term from super bullish to profit taking mode.   This is the down swing in the channel that we were talking about.

In the Signal Trades spreadsheet: 

• We placed 2 sell orders, one for UVXY at 27.5 and one at higher sell price.

Updates 9:17 AM EST - Thursday 9/3/20

Pre-market

• $NDX $SPX IWM are all gapping down this morning, exhausted from yesterday's tremendous climb.
• $VIX is coiling to rise higher today.

There is a chance that in the morning fluctuation, $VIX will drop a bit and therefore UVXY will drop a bit too.   If you are looking to enter UVXY or add to your positions, see our Signal Trades setup.  You will need to monitor $VIX $VXN UVXY closely.   The opportunity may be fleeting.

In the Signal Trades spreadsheet: 

• We personally had 2 UVXY positions already bought on 9/2 at 23 and 23.4.
  
• We also wrote: "If you haven't entered UVXY yet, you can scale in between 23.5 and 24."

Updates 12:59 AM EST - Thursday 9/3/20
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Updates 12:50 PM EST - Thursday 8/27/20

Selling is accelerating
Well well well!
Our prediction is coming sooner than we expected.   What we wrote at 12:04 PM EST is coming true.

...we are expecting $SPX $NDX IWM to drop lower in their channels soon, possibly to their green support zones before they find enough buyers to resume the rise.   

So it was a wise move not to be fooled by $SPX $NDX morning head fake.   Alas UVXY reversed too fast for us to re-enter.   

At this point, we have clear confirmation that $SPX $NDX IWM are going to continue the short-term selling process.   We will monitor for pullbacks in $VIX $VXN to enter UVXY.   

By the way, we prefer UVXY right now rather than the inverse ETF such as  SQQQ TZA SPXS.   This is because $VIX $VXN movements are more reliable than $SPX $NDX IWM right now.   You can't trust stock prices, but you can trust volatility any day.

Updates 12:04 PM EST - Thursday 8/27/20

$SPX $NDX IWM: short-term upside is limited
As you know our trading system is based primarily on the messages sent out by $VIX $VXN.   When both of these indices send out the same message, it's usually a big signal for a directional change in $SPX $NDX IWM.

This morning $VIX $VXN have been sending out fluctuating mixed messages.  However, they do have one underlying theme.  VIX $VXN are transitioning to climb higher.  But before they can do so with strong momentum, they must anchor themselves in their own short-term support zones.  So $VIX $VXN are spending today probing for these support zones.

While $VIX $VXN are doing this, we get a lot of short-term fluctuation in $SPX $NDX IWM as well.  There is a good chance that $SPX $NDX will try to climb higher today and Friday.  They have been rising despite the bearish divergence from market breadth and volatility.  So they may very well continue to do so.  

In our experience, this is a high-risk low-reward setup.  So we are choosing not to chase $SPX $NDX up at this point.  Our Signal Trades have generated some handsome profit this week, and we prefer to keep it rather than give it back to the market by overtrading.

By the way, please note that we are not saying there will be a huge sell-off.   We are not saying Dive2 is here.   We are not saying $SPX $NDX IWM up channels are coming to an end.

But we are expecting $SPX $NDX IWM to drop lower in their channels soon, possibly to their green support zones before they find enough buyers to resume the rise.   

Updates 10:09 AM EST - Thursday 8/27/20

Get out of short-term long positions
The sell-off is accelerating for $SPX $NDX IWM.
We are scaling into UVXY.

Updates 10:01 AM EST - Thursday 8/27/20

Conflicting $VIX and $VXN

• $VXN continues to rise sharply with no sign of top formation yet.
• $VIX is starting to drop more sharply.

This mixed message results in rising $SPX IWM and a more bearish $NDX right now.

We are not comfortable entering into long or short positions when $VIX $VXN are not sending out the same message.  We are not seeing any low-risk setups right now for long or short entries.

So we are staying in cash this morning and continuing to monitor for setups.   We will post updates if the setups start to form.

Updates 9:39 AM EST - Thursday 8/27/20

Stimulus is here to stay
From WSJ:
“While the Fed didn’t change its inflation target, it made an important and widely anticipated shift by stating that if inflation runs below 2% following economic downturns, it will seek to hold longer-term inflation expectations steady by seeking periods of inflation above 2% when the economy is stronger.”

In other words, no pre-emptive move by the Fed to withdraw stimulus if inflation starts to rise and gets close to 2%.  Fed will let inflation run higher than 2% to juice the much needed extra growth.

Market's response:

• $VIX is grinding in a tight range.
• $VXN is marching sharply higher.

We are monitoring for the other scenario where $VIX $VXN will form a spiky top and start to drop back down into their channels.   

This would be a bullish setup for $SPX $NDX.  It would provide us with a short-term pullback to re-enter $SPX $NDX long positions, and to continue capturing the short-term up swing that started on 8/20.

However, the setup is not here yet.   Proceed with caution.   It is not necessary to trade constantly.   We are looking for low-risk setups as always.

Updates 9:10 AM EST - Thursday 8/27/20

Waiting for Powell
$SPX $NDX IWM are not gapping up this morning.   Instead they are stuck pretty much where they left off.   The same is true with $VIX.

This tells us that market participants are awaiting Powell's speech at 9:15 AM EST.   Similar to FOMC announcement, this speech has a way of moving prices sharply.

Monitor for this scenario during or post speech:

• $VIX $VXN drop down some amount from closing level yesterday.
• $SPX $NDX rise up a bit more to get outside of their channels and a little further up into their orange resistance zones.

When this combination happens, it is a setup for $VIX $VXN to rise up higher.  We will be looking for low-risk setup to enter UVXY for a short-term up swing.

​Updates 1:05 AM EST - Thursday 8/27/20

High Probability of Selling On Thursday
We discussed in our post late Wednesday the fact that $SPX $NDX were breaking out against growing bearish divergence.

There is a high probability that $SPX $NDX will gap up at open on Thursday. 

At the same time, if $VIX $VXN continue to rise sharply above their 200-hour EMA lines on Thursday, it's a lot of bearish headwinds for $SPX $NDX IWM.  So there is a high probability that $SPX $NDX will do an intraday reversal on Thursday and start to drop.

Expect to see some selling on Thursday, not enough to drop $SPX $NDX down to their green zones yet.   But the selling process is likely to start.

Table of Support & Resistance Zones
This table has been updated with new orange and green zones.
...
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Updates 9:23 AM EST - Tuesday 8/25/20

Pre-market Signals
$VIX is likely to rise up and do a quick retest of the zone between 22.5 and 23.

This means $SPX $NDX IWM will pull back a bit this morning, before resuming their rise.

​The key is to monitor for how high $VIX $VXN rise up in the channels.   If they rise up but stay within their channels, it is a bullish setup for $SPX $NDX IWM.

Signal Trades:

• Placed one buy limit order for TQQQ at 142 pre-market
• Placed one buy limit order for TQQQ at 143.5 pre-market

Both orders got filled.   Click here for our Signal Trades.   ​


Updates 1:30 AM EST - Tuesday 8/25/20
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Updates 3:20 PM EST - Thursday 8/20/20

Short Term
$VIX is still dropping sharply, but $VXN has started to go sideway from the initial drop this morning.   

Our recommendation is to tighten stops on your $SPX $NDX IWM short-term bullish positions and think about taking partial profits.   There is no guarantee that $VIX $VXN won't start climbing again tomorrow, and cause $SPX $NDX IWM to drop again.   

Updates 9:46 AM EST - Thursday 8/20/20

Short Term
$VIX formed a top at the top edge of its channel.   If you look at $VIX hourly chart that we showed you at 12:55 AM today, this means that $VIX is likely to drop back lower in the channel.   This is a short term bullish setup for $SPX $NDX IWM.

It does not necessarily mean that $SPX $NDX IWM are ready to surge much higher.   But there is a bullish respite.   $SPX $NDX IWM are likely to retest their recent highs, but understand that the underlying mood for the bigger picture is transitioning to bearish.

Updates 9:22 AM EST - Thursday 8/20/20

Short Term
$VIX gapped up overnight and tagged the top of its yellow channel briefly.   It pulled back a bit but is climbing back up towards this top edge again.

$SPX $NDX IWM are all gapping down.

There is a high probability of $VIX surging out of the channel by a small amount.   Then it may still drop back into the channel, but overall this action will lift $VIX EMA lines upward, preparing for its eventual rise out of the channel.

What this means is some amount of selling will start today.   $SPX $NDX IWM are likely to get down to their green support zones to search for new buyers.   This is the first line of defense for $SPX $NDX IWM.   We expect that $SPX $NDX IWM will find some support here at least initially.

Updates 12:55 AM EST - Thursday 8/20/20
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