Updates 12:45 AM ET - Monday 8/1/22 Upcoming key events This is week is all about jobs.  Earnings this week Chart courtesy of Earnings Whispers.  The big picture: still gloomy fundamentals
The only source of strength in the current economy is the labor market. The job report this week will give us a better idea of where jobs are heading. ...but squeeze, baby! As we explained on Friday, despite a very gloomy economy, the market is turning bullish basically on the bond market betting that the Fed will cut rates in the 2nd half of 2023. And because of the dominance role of equity hedging via the options market (puts), any hint of bullishness in price actions can quickly trigger a short squeeze due to short covering by traders and massive short covering by dealers. It's very difficult to trade this market if your trade criteria are driven by fundamentals. Bears betting against the current price actions may get squeezed hard. But bulls also need to be careful. The rate cuts in 2023 may just turned out to be a bond market fantasy. And any hints of this not happening will trigger a massive sell-off, in both bonds and equities. Bear market rally that might become bull market If we focus on actual price actions, the charts right now are saying "bullish, bullish, bullish!" Take a look at ES 4-hour chart below. We want to suggest to you that it is entirely possible that a new bull market has started on 7/19/22. This is when the 20 EMA blue line rose above 200 EMA green line. More importantly the 200 EMA green line also flattened out and started to rise. So while traders may be foolishly bullish right now, we don't want to argue with a rising 200 EMA line on a higher time frame like a 4-hour chart. We just want to ride it up.  Market breadth confirms bullishness   Volatility confirms bullishness While ES NQ RTY 200 EMA green lines (4-hour charts) are rising, $VIX $VVIX 200 EMA green lines are dropping. In fact, they've been doing this since 5/20, but nobody believed their bullish message.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
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Updates 1:00 AM ET - Monday 7/25/22 Upcoming key events This is a big week in economic news, but the event with the most power to move the market is FOMC rate announcement on Wednesday.  The big picture: still gloomy fundamentals
So is the bear market rally done? The current bear market rally that started on 6/16 was fueled primarily by three factors:
As we discussed in Friday's post, the short-covering activities that functioned as fuel for the rally since 6/16 has been mostly burned off. The short-term bullish volatility signal is starting to fade. The market is now vulnerable to the effect of economic news since it's not as well hedged yet as it was before 7/15. There are a lot of triggering news this week, along with the big one which is FOMC rate announcement on Wednesday. So we should expect big price swings, potentially both up and down. Speaking of FOMC, the Fed is expected to raise rate by 0.75 percentage point on Wednesday. (They usually float their numbers to the Wall Street Journal.) The market has already priced this in. It is the hints of how much longer does the Fed expect to keep raising rates that will matter more to the market at this point. Market breadth
Taken together, waning breadth is usually a bearish warning. Short-term volatility signal: "Fading Bull" (close to becomimg "Rising Bear") $VVIX 2-hour chart below continues to form a W bottom with its 20 EMA blue line. These W bottoms typically precede a big rise in volatility (red arrows). This is a warning from $VVIX that the bullish force is fading.  To be clear though, $VIX itself has not risen up enough yet. It is still below its 20 EMA blue line in the 4-hour chart below.  What would turn the signal to "Strong Bull" again? If $VVIX quickly spikes up from here to about 103, and $VIX spikes up to about 27, and then they both drop quickly, the setup would recharge the bull again. During the quick $VVIX $VIX spike, prices may retrace to these key levels:
These are potentially bullish setups, and ES may rise from 3800 all the way to 4200 (high 5/30). What would turn the signal to "Rising Bear"? If $VVIX and $VIX spend a few days building a bigger W or multiple W bottom, then conditions will be turning seriously bearish. $VVIX $VIX may rise a lot higher. In that scenario, ES NQ RTY are likely to retest the lows of 6/16.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 10:45 AM ET - Sunday Upcoming key events This week is lighter in economic news.  Important earnings this week:  The big picture: gloomy fundamentals
Short-term volatility signal: "Rising Bull" Yet weirdly enough, stock volatility continues to drop. $VIX weekly chart below shows it has been forming a series of lower high tops for the last 6 weeks. This has been providing bullish tailwind for $SPX. $VIX may drop all the way to its 200-week EMA green line (currently at 21.5) before a much bigger bounce. This means more short-term bullish tailwind for $SPX.  Market breadth: providing bullish tailwind for stocks
Stock indices may be coiling to break out In looking at Nasdaq futures NQ 4-hour chart below, it is now clearer that NQ has been bullish since 6/16 low. And since that low, NQ has been coiling to form a base, as evident in the patterns of its 20 EMA blue line and 50 EMA red line. There is a high probability that this coiling base will result in a breakout, most likely post FOMC next Wednesday 7/27. The breakout may push price back up to the highs of 6/2. This is true for NQ as well as ES and RTY.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 9:22 AM ET - Wednesday 7/6/22 ISM Service Report and FOMC Minutes
Updates 11:30 PM ET - Tuesday Short-term volatility signal: "Transition" When we last posted at 2 PM on Tuesday, stock indices were still not fully revealing their directions yet. But by end of day Tuesday, price actions and chart patterns swung in the bullish direction. So how real is this? $VIX daily chart below shows that it has been forming a lower high pattern relative to the highs of mid-June. Tuesday pattern confirms that volatility continues to ebb. This provides bullish tailwinds for stocks.  SVXY chart also gave us a substantial clue. Observe the sideway 20 and 50 EMA blue and red lines on SVXY 2-hour chart below. The last time SVXY formed this pattern was 5/24, right before it broke out.  Nasdaq is the most bullish index right now (who knew) Nasdaq Advance-Decline net issues are climbing back up. NQ $NDX price actions were much more bullish on Tuesday than S&P or small caps. This happened despite the major sell-off in semiconductor stocks (SOXL). So what can we expect to see from NQ chart? NQ 4-hour chart below shows that it is forming a potential W bottom. As long as NQ stays above the support level of 11350 on Wednesday, it turns the signal to "Fully Bullish". Once NQ starts rising, the first level of resistance is at the 200 EMA green line, around 12007. If NQ can vault over this line, it has a chance to get back up to 12900.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 8:45 PM ET - Sunday Upcoming key events This week brings more economic data to fuel the discussions about inflation, recession and rate raise. Note also that next Monday is 4th of July holiday, and this one will be particularly poignant.  Big picture: Bear market still in pause mode with short-covering rally In the updates for Tuesday 6/21, we wrote that the bear market is not done, but is likely to be getting a respite in the form of a short-covering rally during the week of 6/21. And that is pretty much what happened last week. Big picture: Intermarket indicators show bullish support Intermarket indicators are still supportive of the current rally, as they were last week.  Big picture: Market breadth shows bullish support Market breadth has certainly been improving. The percentage of Nasdaq stocks above the 200-day MA went from a 4% low (week of 6/13) to 18% high (week of 6/20). Similarly, NYSE stocks went from 5% low to 23% high. Also, the weekly chart doji pattern shown below is also bullish.  Short-term volatility signal: "Fully Bullish" $VIX is forming a topping pattern. $VVIX is steadily dropping. Both charts are providing bullish support for stocks.  But we should monitor SVXY closely. It formed an evening star candlestick on its daily chart on Friday 6/24. On 5/17, this pattern lead to a drop in SVXY (bearish for stocks). On 5/26, SVXY ignored this pattern and kept marching upward.  Bear market done? We really don't think so. A lot of puts expired in the last two Fridays, and that accounted for the drive behind the current rally, which started on 6/16. There is end-of-month expiration happening this Thursday 6/30 (for June). There is end-of-week expiration happening this Friday 7/1. As these put options expire, dealers will rebalance their books by covering their stock futures shorts. This is buying into strength, and it fuels very sharp price increase. (See articles explaining this phenomenon here.) While we think it is possible for ES to rise up to 4000 this week, it is likely to run into strong resistance there, and will consolidate for multiple days before breaking out or breaking down. Furthermore, even if the bear market was done, it is extremely unlikely for ES to march straight up (V recovery) without forming a W bottom, or cup-and-saucer pattern near 3639 first.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12:45 PM ET - Monday Upcoming key events After all the events of last week, market participants were psychologically exhausted going into the long weekend. This coming week is much lighter in economic reports, but Powell is scheduled to speak on Wednesday and Thursday. Some potential fireworks there.  Short-term: Bear market is not done, but it is getting a respite Despite the Fed's latest attempt at soft landing, this bear market is not done yet. But it would appear that there is a bit of a respite happening after the major sell-off right before FOMC last week.
Nasdaq percentage of stocks above 200-day MA dropped as low as 4% last week, before recovering to form a bullish doji on its weekly chart. It closed at 8%, certainly down in the range of capitulation. But the charts are not sending out a clear "capitulated" message just yet. Long term: $SPX to 3000 and then 6000? All of this is very depressing news for most people. But you may cheer at the following projections. One of the most bearish analyst on Wall Street, Michael Hartnett, came out with some interesting predictions for this bear market. Essentially, based on historical data:
Short-term volatility signal: "Transition" Zooming back into the short-term tactical trading perspective, we focus once again on the keeper of the market rhythm: $VVIX, otherwise known as "vol of vol". So far in this bear market, when $VVIX has formed 4 topping spires is when the volatility signal becomes "Approaching Bullish". Then when $VVIX drops below it 200-hour EMA, rises back up and tags this key resistance, volatility signal becomes"Fully Bullish". We don't have that setup with $VVIX yet. $VVIX has only formed 2 spires so far.  But in case we're wrong about this projection, we are also going to track it via SVXY.  Key S/R levels While SVXY forms W bottom, here are the key S/R levels to monitor.
 Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 1:38 PM ET - Wednesday 6/15/22 Short-covering rally starting today... At this point, there is a very high probability that the Fed will raise rate by 0.75 percentage points, and murmur something about being committed to fight inflation. The market has been anticipating this since the Fed floated this idea in WSJ articles in the last few days. And the market's response is likely going to be short-term bullish, evident by volatility forming short-term tops, and stock indices attempting to climb. Post FOMC, we expect to see a quick retest of ES NQ RTY lows from yesterday, followed by a more earnest attempt to climb. In other words, the short-covering rally is going to start early ahead of Friday OpEx. This also means that the rally is likely to be done by Tuesday. (Market is closed Monday for Juneteenth holiday.) Key S/R levels These are going to be key levels for ES:
Trade plan We plan to enter a Quick Bull position to capture this rally, but as the name implies, it will be quick. We still plan to enter Multi-day and Multi-week Bear positions at lower entry price. We'll update spreadsheet shortly. Updates 12:30 AM ET - Wednesday 6/15/22 Bear market sell-off stabilized a bit ahead of FOMC After three days of straight selling, all stock indices stabilized a bit and formed doji candles on their daily charts. As of tonight's writing, they are attempting to climb a bit. But this bear market is not done yet. It has a long way to go still. We are projecting the following levels before we see some kind of real bottoming:
Conditions continue to be bleak for stocks, bonds, and crypto.
Volatility signal: "Fully Bearish" $VIX $VVIX both took a breather on Tuesday. They may be forming temporary tops, but $VVIX will have to form multiple same-high spires above its 200-hour EMA for volatility signal to ease from "Fully Bearish" mode. It is far from this pattern right now. For this reason, we think $VIX can still rise up to 48 before it tops out. What to expect with FOMC As of Tuesday, there were serious indications of the Fed raising rate by 0.75 percentage point instead of 0.5. According to WSJ: “My sense is that the Fed has decided to do 75 basis points rather than 50 basis points because of the data we’ve gotten over the last week or so showing higher inflation and maybe some more disturbing news on inflation expectations,” former New York Fed President William Dudley said. Whether the Fed will actually do it, or just stick to 0.5 remains to be seen. And no one knows for sure if the market will perceive the FOMC announcement as bullish or bearish. On top of this, we have a huge quarterly OpEx on Friday. So we want to lay out a few scenarios below for you to track. Bullish response: market likes what it hears and begins to unload puts right after FOMC, ahead of Friday OpEx. This will start the short-covering rally right away. But because this rally is pulled forward, there will not be much fuel left for the rally to continue after OpEx. Given the 3-day weekend, we think the rally will peter out by Tuesday. Bearish response: market freaks out after FOMC announcement. Selling resumes and keeps going until Friday. Implied volatility ($VIX) jumps due to increased demands for puts. As a result, dealers have to short stock futures even more to keep their books neutral. Dealers in effect will sell into weakness, taking away liquidity and causing huge price drops. This is the stomach-dropping scenario. But on OpEx Friday, a lot of these puts will expire. In response, dealers will cover their shorts, thereby launching a short-covering rally that may last until Wednesday. Keep in mind though that in both scenarios, the rally will not last very long and what comes after is more selling. A lot more selling. Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12 AM ET - Monday 6/6/22 Upcoming key events The CPI report on Friday will be closely monitored as it comes right before FOMC announcement on 6/15. The week of 6/13 will be a fairly explosive week, followed by a 3-day weekend. So mark your calendar not to go on vacation during that week.  Bear market is closer to the end than to the beginning Take a look at the weekly chart of Nasdaq percentage of stocks above 200-day MA. This percentage is the worst among all the stock indices. But it is in the process of forming a bottom. As long as this percentage can stay above its recent low of 12%, the bottom becomes stronger. And if this percentage dives below 10%, that is historically capitulation area.  OpEx week can lead into big summer rally The upcoming OpEx on 6/17 is very very big. Over $3.2 trillion in options are set to expire, and the majority of them are put options. Traders and portfolio managers have been purchasing massive amount of puts to hedge against the drop in stock prices. When a trader buys puts, a dealer is selling it from his book. To keep his book neutral from the direction of the market, the dealer has to hedge. He typically hedges against his sold puts (bullish) buy shorting stock futures (bearish). When these puts expire or are monetized by traders, dealers have to cover their shorts to stay market neutral. The result is a short covering rally because dealers are now buying into strength. Their buying raises stock prices, prompting traders to sell more puts, which then forces dealers to cover more shorts. And a virtuous cycle starts for the bulls. Imagine over $3.2 trillion options, most of which are puts, expiring on 6/17. The resulting short squeeze can trigger a massive rally that may last multiple weeks into the summer. Read more about how options are impacting the underlying stock market here.  Short-term volatility signal: "Transition" However, before we get there we may have to endure another week of choppy or slightly bearish trade actions. $VVIX is hinting that it is getting ready to rise, at least back up to the zone between 106 and 110 (20-day and 50-day EMA lines). As $VVIX rises, stock prices are likely to drop some amount. So we should be prepared for choppy to bearish price actions. Read more about volatility and volatility ETFs here.  Key support and resistance levels Given the likely choppy market conditions, we are looking at tight trading ranges to start the week
Between now and 6/17, we should be prepared for price actions similar to the period between 2/24 and 3/15. Recall that March FOMC was on 3/16, and March OpEx was on 3/18. And similar to June, March OpEx was the end of the first quarter, and was quadruple witching as well. And the stock market turned bullish on 3/15, right before all these key dates. 
Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 11 AM ET - Monday Upcoming key events The key events coming up are actually mid-June, on 6/15 and 6/17. That will be a fairly explosive week, followed by a 3-day weekend. So mark your calendar not to go on vacation during that week.  Is this the bottom of the bear market? No one really has the answer for that, but there are some interesting projections by various analysts. The latest projection from Bank of America calls for S&P at 3000 by October, which is a depressingly low number. Below is the daily chart of Nasdaq percentage of stocks above their 200-day MA. This is what we call the percentage of "happy stocks". On 5/20, it got a low as 12%. Historically, when the percentage of "happy stocks" drops below 10%, it is a reliable indication that the bear market has reached capitulation level. 12% is not as clear of an indication. Meanwhile NYSE only got as low as 22%, and small caps got to 17% as the latest low. So we can't say that the bear market has reached capitulation level. This is not good big picture news for the bulls.  Improving breadth supports bear market rally However, in the short term, bulls should rejoice. The sharp jump in the percentage of "happy stocks" indicates improving breadth.
This is confirmed by the sharply rising Advance/Decline lines for all stock indices as well. Short-term volatility signal: "Fully Bullish" Our volatility signal turned "Fully Bullish" by end of 5/20. That was after a very sharp drop where the S&P dipped into "bear market territory" officially. But volatility charts ($VIX $VXN $RVX $VVIX) all showed that volatility was steadily declining. That was why the volatility signal turned "Fully Bullish". What this demonstrated was the accuracy of our volatility signal. We must confess that even we sometimes have a hard time fully believing it. The bearish sentiments were so strong during the week of 5/16. It can make you doubt your own system. But there is no doubt now that the volatility signal has been right all along. And as of this Friday, it is sending out a bullish message, showing that volatility is not ready to rise yet.  Key support and resistance levels The battle ground for this week will be between these key levels:
(Support is the low of 5/27. Resistance is the high of 5/4.) The bulls have the advantage for now. As long as ES NQ RTY stay above their support levels, they will try to clim up towards resistance. To track their upward progress, use their 15-minute charts to monitor the 200 EMA green line. For example, ES 15-minute chart below, as long as ES 200 EMA green line is still rising, its bullish momentum is still intact. Once this green line starts to go sideway, pay close attention to the message by $VIX and $VVIX. If one of them turns bearish, the volatility signal will become "Transition" at that point. Do note that the resistance levels listed above are very strong. They are where the bulls got trapped post FOMC on 5/4. So a lot of sellers are likely to step in at this level.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
Updates 12 AM ET - Monday 5/23/22 Upcoming key events FOMC minutes on Wednesday and GDP report on Thursday will no doubt move the market in some ways. But given the disastrous earning reports of Walmart and Target last week, Friday's reports are going to be monitored closely to gauge whether or not consumers will continue to support this economy. And speaking of earnings, the following earning reports will also be closely monitored on Thursday after hours: COST (Costco), NVDA (Nvidia).  Bear market is not done In the big picture context, the bear market is not done yet. The horrible combination of super hot inflation, supply chain disruption, unending pandemic, China shutdown, Ukraine war is not improving. Not anytime soon. A recent WSJ article discussed how this could be the lost decade for stocks. We are inclined to agree. But a bear market rally is imminent Having said all that, we will now say that a bear market rally is imminent. It is likely to start as early as Monday based on volatility signal (see more on that further below.) Besides volatility signal, there are other important signs of market stabilizing for the short term.
Short-term volatility signal: "Fully Bullish" $VIX: "Fully Bullish"
 SVXY: "Fully Bullish" SVXY 15-minute chart below shows 2 sets of W bottoms formed since 5/2.  ES: "Fully Bullish" Don't let ES $SPX dip towards 3800 on Friday fool you. That was a bear trap. Price dropped just enough towards this key level to trigger the criteria for the algos to go short. Then price reversed hard. And reversed across the board for S&P, Nasdaq and small caps. All this happened in on a Friday afternoon. That's a bullish turnaround. However, we don't think ES, along with all the other indices, will just take off right away on Monday. Below is ES hourly chart with key consolidation zones highlighted in yellow. While we don't think ES will retest 3800 again this week, we think bulls and bears are going to fight it out in ES support zone between 3855 and 3950 for a bit. If ES can get down close to 3855 one more time and find enough buyers there to help it reverse sharply upward, then the bargain hunters are likely to step in to help with momentum. Once ES reverses upward, it can rise up to the top of the next consolidation zone at 4045. Ultimately, ES may rise back up to 4300 before signal turns "Fully Bearish" again.  Trade plan Click here for live trades. Subscribe to get our latest analysis, daily trade plans and live intraday trades. Current trade record here. Disclaimer The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades. |
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