Updates 10:30 PM ET - Sunday Upcoming key events There are 2 key dates that may see a rise in $VIX. First is April VIX options expiration this Wednesday. Once these options expire, we may see a fresh rise in demand for new $VIX calls (long volatility) and equity puts (short stocks). This demand may increase substantially as traders feel the need to hedge ahead of FOMC announcement on May 4.  Key Price Levels The table below has been updated for all but IWM TNA. L1 is a strong support level, and this is where we expect the current sell-off to end.  The Big Picture: bad news and good news We've been relying on the Percentage of Happy Stocks chart to show us a pretty accurate snapshot of big picture market moods. ("Happy Stocks" are stocks that are above their 200-day MA). Below is the Nasdaq Happy Stocks chart. There are two important messages on this chart. Bad news: Last week we wrote this about the percentage of Nasdaq Happy Stocks: It is on its way to retest 20% zone. This path seems to be happening for not only $NDX, but also $SPX and IWM as well. This signal is currently "Fully Bearish". We're unlikely to see real recovery before Nasdaq tests 20%. Good news: This is a chart pattern that we typically see at the end of a bear market, not at the beginning. This pattern is close to capitulation. The percentage may bottom out anywhere between 20% and 10%. After that we typically see a very bullish sharp rise back up as a new bull market starts.  Volatility confirms "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. On 3/29, volatility of volatility ($VVIX) gave us the initial warning that market conditions were "Approaching Bearish" as a new volatility cycle was starting back up. Since then, $VVIX has been coiling upward. $VVIX 20 EMA blue line and 50 EMA red line are about to cross over the 200 EMA green line. As you can see from previous patterns, this is typically a setup for $VVIX to surge. We may see $VVIX revisits the high of March 8.  Meanwhile $VIX weekly chart showed that it has formed a couple of contracted weekly candle, anchored on its 200-week EMA green line. This is typically a setup for $VIX to surge.  Supplemental Indicators: confirm "Fully Bearish" (mostly)
Dealer hedging: $SPX $NDX IWM are currently below the key levels where dealer hedging turns to "fueling volatility". This means that dealers are now buying strength and selling weakness, potentially creating big swings in price. This is typical of "Fully Bearish" conditions. Nasdaq is the leader on the way down Keep an eye on $NDX. It has a good chance of finding bottoms at February 24 low. When $NDX finds strong support, $SPX and IWM will also.  Trade plan While the signal is "Fully Bearish", we will focus on trading SQQQ and UVXY. We won't attempt any counter-signal trades because our record for those trades have not been as successful.
Subscribe to get our latest analysis, trade plans and live intraday trade adjustments. Current trade record: 340% since July 2020 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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We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Current trade record here. Click here for live trades. Updates 3:00 PM ET - Sunday Upcoming key events This is a short week as the stock market is closed on Friday for Easter weekend. The CPI report on Tuesday is expected to be hot, but by now everyone knows and expects this number to be high. So there may be no negative surprise here. But April options expiration (OPEX) is earlier than usual, and $VIX monthly expiration follows on 4/20 rather than precedes OPEX. Given the 3-day holiday weekend, sandwiched between the two expiration dates, there may be some unusual swings.  Key Price Levels The table below is the same as Thursday.
 The Big Picture: bad news and good news We've been relying on the Percentage of Happy Stocks chart to show us a pretty accurate snapshot of big picture market moods. ("Happy Stocks" are stocks that are above their 200-day MA). Below is the Nasdaq Happy Stocks chart. There are two important messages on this chart. Bad news: By 3/29, Nasdaq percentage of Happy Stocks ran into strong resistance at its 20-week EMA blue line (48%). It formed a topping candle and dropped sharply. It is on its way to retest 20% zone. This means we are likely to see selling this week for tech stocks. NYSE and small cap charts are showing similar patterns. This means selling for the S&P and small caps as well. Good news: This is a chart pattern that we typically see at the end of a bear market, not at the beginning. This pattern is close to capitulation. The percentage may bottom out anywhere between 20% and 10%. After that we typically see a very bullish sharp rise back up as a new bull market starts.  Volatility confirms "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. On 3/29, volatility of volatility ($VVIX) gave us the initial warning that market conditions were "Approaching Bearish" as a new volatility cycle was starting back up. Since then, $VVIX has formed a W bottom and its 200-EMA green line is coiling upward (see 15-minute chart below).  $VIX itself also formed a W bottom and its 200 EMA green line is coiling upward as well. We may see $VIX tags 20 quickly on Monday. After that it is likely to climb up, possibly reaching 29 before this volatility cycle ends.  Supplemental Indicators: confirm "Fully Bearish" Equity Put/Call ratio: The P/C ratio daily chart below shows only EMA lines to make it easier to discern its pattern. Observe how the 20-day EMA blue line is forming a W bottom, ready to rise back up to form possibly a lower high top. This confirms the "Fully Bearish" mood happening right now. What the P/C ratio pattern is telling us is that traders have been buying more puts, and are likely to keep up the demands for hedging puts as market sells off. This creates a vicious cycle with dealer hedging, becoming a technical force that can drive price down short term. Dealer hedging: Given the current dealer hedging of their books, if $SPX drops below 4475 and QQQ below 357, sharp price swings will kick in. This is because as price drop below these levels, dealers will need to buy into strength and sell into weakness to stay delta neutral. This means they will be fueling volatility, creating a vicious cycle. Bonds: Bond volatility (MOVE) has been rising sharply again. All bonds are selling off, and Treasury yields are rising sharply. We may see capitulation in the bond market in a couple weeks, but until then traders will be selling bonds, and selling equities as well. Dark Pool Index: This index has been forming a topping pattern, confirming the "Fully Bearish" conditions for now.  Trade Plan We think there's a strong possibility that $SPX will drop down to retest 4300.
In the spreadsheet, we show our plan to continue scaling into SQQQ and UVXY and where we plan to take profits. Looking further down the road, once conditions become "Approaching Bullish", we will start scaling into:
Click here for live trades. Subscribe to get our latest analysis, 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. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Current trade record here. Updates 6:30 PM ET - Sunday 4/3/22 Upcoming key events This week is light in economic reports, but there are few Fed speakers as well as the release of FOMC minutes to stir things up a bit.  Key Price Levels The table below has been fully updated. These new price levels will be in focus this week. Table is available in members section. Weekly index charts confirm "Approaching Bearish" $VVIX has been warning us that volatility is about to rise some amount. This means stock indices are about to pull back a certain amount. Stock conditions have changed to "Approaching Bearish". This is confirmed by the topping candles formed on $SPX $NDX IWM charts. How much of a drop can we expect and how long? We don't think stock indices are starting a lower-low leg in a bear market. Rather, they are building the 2nd leg of a really big W from which they can propel themselves higher, getting out of the bear market for real. This potential path is shown on $SPX weekly chart below. Here are our projections:
 "Happy stocks" charts confirm "Approaching Bearish" The weekly chart of Nasdaq percentage of stocks above 200-day MA shows a big topping candle formed right at the 20-week EMA blue line. The odds are high that this percentage will drop, possibly to retest 20% again. This confirms the "Approaching Bearish" condition for $NDX. NYSE and small cap charts are showing similar patterns as well.  Volatility confirms "Approaching Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. Volatility of volatility ($VVIX) formed a complete W bottom by 4/1, setting the stage for a possible multi-day climb back up. $VIX $VXN $RVX all confirm the "Approaching Bearish" conditions.  Supplemental Indicators Equity Put/Call ratio: This ratio has stopped dropping and started rising steadily since 3/25. This means traders are starting to buy more puts for hedging and shorting purpose. This confirms the "Approaching Bearish" conditions. Dealer hedging: If $SPX $NDX IWM drop and stay below Friday's lows, current state of dealer hedging will fuel volatility. This is because dealers will be selling into weakness and buying into strength, thereby creating sharp price swings. Bonds: Bond volatility (MOVE) has been rising sharply for the last several weeks. Junk bonds (JNK HYG) weekly charts show topping patterns. Junk bonds tend to behave like equities. This confirms the "Approaching Bearish" conditions. Dark Pool Index: This index is starting to show a topping pattern, confirming the "Approaching Bearish" conditions. Trade Plan After $VIX $VVIX form a W bottom, they will be ready to rise for multiple days. We plan to capture this rise volatility and drop in price via UVXY and SQQQ. The charts below show the possible price paths for UVXY and SQQQ. Note that we plan to scale into both positions at the lows of last week, and take partial profits along the way. Click here for UVXY SQQQ charts and current buy/sell orders. Subscribe to get our latest analysis, 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. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 11 PM - Sunday Short Term: Upcoming key events This is a week of light data, but traders will pay close attention to the oil report on Wednesday, and on Thursday all eyes will be on CPI data.  Big Picture: Bear market Futures ES NQ RTY are dropping sharply as we write this. There is a good chance that $SPX $NDX IWM will gap down big at open. The best hope for the bulls at this point is for all indices to retest 2/24 lows, find enough buyers there to stage a real bullish reversal. While our inner bull is hoping for this scenario to come true, we must confess that there are precious few fundamental catalysts to reverse the market soon. In fact, they are all down right negative.
There are analysts arguing that the market is so oversold at this point that it has got to start going up soon. We agree on the oversold part, and we really hope that $SPX will bounce at 4115. Unfortunately, the chart below shows that $SPX may go all the way to 3985 before the end of March.  But the end may be here soon according to $VIX Having laid out a very bearish scenario, we should point out that $VIX chart shows volatility has been through 3 major spikes already since late August last year. $VIX is getting ready to do the 4th spike, possibly up to 44. But that may be the last spike in this bearish cycle.  The end will come when only 10% of Nasdaq stocks are happy The percentage of "happy stocks" here refers to percentage of Nasdaq stocks that are above their 200-day EMA. The weekly chart below shows a current reading of 30%. We suspect with the selling this week, this number may get down closer to 10% soon. This is actually good news for the bulls. If it gets down to 10% or lower, a real bottom is likely to be in. This means a possible new bull market segment for Nasdaq stocks. For comparison, the Nasdaq crash of 2002-2003 bottoms out in July 2002, and that's when the chart below read 10%.  Short-term: Key price levels The table below has been fully updated. These are short-term key price levels to help guide your trade plan for this week. Note that all the levels have been lowered. L6 is the high of last week, L2 is the low of 2/24, and L1 is very strong support, and a possible bottom.  Trade plan Click here for live trades. We will be looking for pullbacks in SQQQ to enter for multi-day position this week. The goal is to capture $NDX drop to L2 or possibly L1. We will also trade quick intraday positions that are initiated at open, based on futures ES NQ RTY $VIX chart patterns formed overnight. Supplemental data: Trader Hedging (Equity Put/Call ratio) On the daily chart, equity put/call ratio EMA lines are still all rising. This tells us that market participants are still buying and holding on to their puts. Supplemental data: Market Breadth (Advance-Decline net issues) A/D cumulative lines look bearish for all indices, especially $NDX. But the pattern has gone into extreme oversold mode. So there is a good chance that $NDX getting close to bottom. Supplemental data: Hedging by Dealers Read more about how options are impacting the market and the effects of dealer hedging here. Below are the updated volatility trigger levels from Spotgamma.
As of this writing, all three indices are below their trigger levels. This means that dealer hedging will fuel volatility, adding to the big price swings in both directions. Supplemental data: Dark Pool Index (DIX) The Dark Pool Index shows silent money is still buying $SPX. They've been at it since 1/25, and has eased up the buying intensity. But they are still buying. This is a very strong bullish divergence for $SPX. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 2:15 PM ET - Sunday Big Picture: Has the bear market ended yet? While the bear market rally that started last week helps to ease market anxiety, in the context of the multi-month big picture, market is still in a bearish phase. And it's not done being bearish yet. Here are 3 things to keep an eye on that will tell us when this bear market will bottom. First, we need to see a lot more call buying from traders and fund managers. Last week's massive rally was mostly due to short covering by traders and dealers. These shorts were a result of big demands for hedging puts from traders and fund managers. There's still no sign of increasing demands for calls yet. We don't have a healthy start to a bull market until traders are eagerly buying calls. Second, the percentage of Nasdaq happy stocks (stocks that are above their 200-day MA) should drop to 10% or lower. Or else there should be a huge double bottom as shown in the chart below. Climatic moments in a bear market do not typically arrive at 36%, which is where we are right now.  Third, we need to see one more really scary volatility spike. So far we've only had two:
The interim spike between 2/9 and 2/24 does not qualify as the scary peak. We need one more volatility spike that forms a higher high from 1/24 peak. Here is our projection for this 3rd spike in the chart below. (Read more about $VIX $VXN $RVX $VVIX here.)  How much lower can market drop to? $SPX 4115 low from last week provides strong short-term support for this week. But ultimately, when the 3rd volatility spike peaks, we may see $SPX bottoms out at 3875. These are our projections, and we may turn out to be dead wrong. In fact, our inner bull really hopes to be wrong about $SPX 3875. But we've been through enough bear market to know that the $SPX at 4115 is not low enough or scary enough to qualify as the bottom. Short Term: Key events this week and next week The key market moving event this week will be Jerome Powell monetary policy testimony to Congress on Wednesday and Thursday. This comes one week before FOMC announcement on 3/16, and sandwiched in between is the job report this Friday. With the Russian sanctions and continuing fighting in Ukraine, a lot of attention may be paid to the oil and gas reports as well.  Short Term: Bear market rally to continue this week Looking at $SPX levels as short-term guide posts, we think that $SPX is likely to peak at 4500 prior to FOMC on 3/16. Again, using $SPX levels as guide posts, here are 2 scenarios to look for. Steady: $SPX retests 4230 and then rises up steadily to 4500. Then it chops for a bit before dropping post FOMC. Choppy: $SPX continues to surge quickly up to 4500. Then it spends most of this week and early next week chopping, before dropping post FOMC.  Short-term: Key price levels The table below has been fully updated. These are short-term key price levels to help guide your trade plan for this week.  Trade plan Click here for live trades. So basically we expect the bear market rally that started last week to continue this week. We want to capture this rally if $SPX $NDX IWM retest L2. See the spreadsheet for TQQQ and TNA rally trades. We will also trade quick intraday positions that are initiated at open, based on futures ES NQ RTY chart patterns formed overnight. These are discretionary trades and we'll post them early if we spy something good. Supplemental data: Trader Hedging (Equity Put/Call ratio) On the daily chart, equity put/call ratio EMA lines are still all rising. This tells us that market participants are still buying and holding on to their puts. Supplemental data: Market Breadth (Advance-Decline net issues) A/D cumulative lines improved substantially for NYSE and Nasdaq and small caps last Thursday and Friday. Still the patterns on these charts are not the typical bear market bottom patterns yet. It is worth noting that small caps actually has the most bullish chart of all. Supplemental data: Hedging by Dealers Read more about how options are impacting the market and the effects of dealer hedging here. Below are the updated volatility trigger levels from Spotgamma.
As of this writing, $NDX IWM have managed to rise above their trigger levels. So we may see calmer price movements this week. However, we have noticed that these trigger levels change rapidly. And in this put-heavy bear market, bullish moods are fragile. Headlines and dealer hedging can still create big whipsaw. Supplemental data: Dark Pool Index (DIX) The good news for the bulls is the Dark Pool Index shows silent money has resumed buying $SPX. They've been at it since 1/25, with some easing early last week. This is a very strong bullish divergence for $SPX. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 9:15 AM ET - Tuesday 2/22/22 Short-covering rally happening Futures started Monday evening dropping down hard, with ES down close to 1/24 low. But ES NQ RTY all found short-term support and rose substantially overnight. $VIX gapped up big overnight to 1/24 high, but dropped sharply. So is this the end of the bear market? No. This is not capitulation for the big picture market current. That condition is still bearish. The fundamental causes for all this fear has not changed: Fed raising rate, Fed tightening, political tension. What we have this morning is a short-covering rally. As prices rose some amount overnight and $VIX dropped, dealers cover their hedges which were short futures. As a result, price rose rapidly. The short-term volatility-based bearish signal may be peaking for now. It may be transitioning from "Fully Bearish" (last night) to "Tilt Bullish" this morning. We need P/C ratio and A/D line to confirm this. We are not planning to chase price up. Short-covering rally induced by dealers is notorious for rapid big price swings in both directions. Furthermore, switching to a bullish trade right now is going against the big picture bearish current. So we want a stronger short-term bullish signal to help our position. The best setup is for ES NQ RTY to test their overnight lows. That would change the short-term signal to "Fully Bullish" and be more favorable price point to enter long. We'll post updated trade setups shortly. Updates 8:19 PM ET - Monday 2/21/22 Bulls should hope for more immediate fear, not less In our analysis below, we pointed out that the market is currently in a phase where there are 2 bearish forces in effect:
This combination amplifies the overall bearishness. Futures confirmed this bearishness by gapping down hard at open this Monday evening. It's certainly is stomach churning for the bulls. So how do we cope with this? First of all, keep in mind that no bear market lasts forever. If you stick to just trading the major stock indices, you can count on them coming back. We've seen this and traded this in 2008, 2015, 2016, 2018, and 2020. Different styles of bear market: yes. Last forever bear market: no. Recall we also said we're closer to the bottom than to the top. It's a matter of time. And it's a matter of getting most of the participants to panic and throw in the towel. When most of the bulls have sold (and sold at a loss) is when the market typically will turn around. Having said that, we will now say that this bear market is not near capitulation yet. Not enough fear. $VIX daily chart below shows the level of fear that bulls should be rooting for. Unfortunately, fear is not high enough yet. So just be patient. It will get there.  Trade plan As we said above, there are 2 bearish forces in effect at the same time right now: big picture and short-term volatility. If futures continue to sell hard tonight, $VIX will shoot up overnight and may peak by 8 AM ET. If we see a big gap up in $VIX and a big gap up in put/call ratio at open on Tuesday, we will monitor for the possibility that the short-term bearish signal has peaked. This short-term bearish signal may then retreat for a couple days. So we may see volatility signal goes from "Fully Bearish" (now) to "Tilt Bullish" by tomorrow. We don't think this is the set up to scale into big bullish positions yet because we would be swimming up stream against the bearish force of the big picture market current. But it may be ok for a small and quick bullish trade via TNA. We'll update more pre-market. Updates 2:30 AM ET - Monday 2/21/22 Upcoming key reports & events  Big Picture Market Current: Bearish In the context of the multi-month big picture, market is in a bearish phase and it's not done being bearish yet. Market participants are still feeling highly fearful, as evident in the steadily climbing level of put/call ratio. (See chart discussion further below.) Additionally, the level of "happy stocks" has not dropped low enough yet. By happy stocks we mean stocks currently above their 200-day moving average. For Nasdaq, this level is at 34%. Bear market usually capitulates once this level drops below 10%. Alas we have some distance to go yet. This bear market is not like the 2020 panic that lasted for 1 month. This one is an orderly downward march that goes something like down>up>down>up. This kind of action can be treacherous for traders as it creates traps for both of bulls and bears. But cheer up, bulls. This market is closer to 10% "happy stocks" than it is to being at a vulnerable top. The final drop will be stomach churning, but the worse it feels, the better the bullish reversal will be. Short-term Volatility Cycle Signal: Fully Bearish Volatility charts and P/C ratio charts are all showing a high probability of more bearishness. (See chart discussions further below.) Keep in mind that even though the big picture market condition is bearish, and the short-term signal is "Fully Bearish", the market will still have bounces. The bounces can make everything appear all right temporarily, but until there's multi-day confirmations, the bears still have the upper hand. Key price levels The table below has been fully updated.  Trade plan We will post updates to the trade plan pre-market on Tuesday. There's a lot that can happen between now and then. Signal: Volatility ($VVIX $VIX $VXN $RVX) Read more about $VIX $VXN $RVX $VVIX here. Even though on the surface $VIX $VVIX $VXN $RVX all show lower highs right now, the intraday charts continue to show rising 200 EMA lines. This means that the volatility-based short-term signal continues to be "Fully Bearish".  Signal: Trader Hedging (Equity Put/Call ratio) The current equity P/C ratio shows a rising 200 EMA line, which implies "Fully Bearish".  Signal: Market Breadth (Advance-Decline net issues) And now a tiny bit of good news for the bulls. Small caps A/D chart below shows rising patterns. We'll declare this as not "Fully Bearish". But we won't categorize it as "Tilt Bullish" yet.  Hedging by Dealers Read more about how options are impacting the market and the effects of dealer hedging here. Below are the updated volatility trigger levels.
As of this writing, $SPX $NDX IWM are still below their trigger levels. So we can expect continued wild price movements as dealer hedging fuels volatility rather than dampening it. Other signals for big picture consideration The good news for the bulls is the Dark Pool Index (DIX) shows silent money are still steadily buying $SPX. They've been at it since 1/25. This is a very strong bullish divergence for $SPX. Another major bullish divergence is the bottoming patterns shown on TLT IEF LQD JNK charts for multiple days last week. This is also a strong bullish divergence for stocks. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 2:30 PM ET - Sunday Upcoming key dates This week is light in economic reports, but there is a big one on Thursday. CPI numbers will undoubtedly move the market one way or another.  Projections for February You may have noticed that volatility moves in cycles that spans the following 4 phases, typically within a one month period.
Currently our system composite signal is still "Approaching Bullish". There is a high probability that we will see the following scenario.
Please keep in mind that these are projections, not guarantees. But we do think that the volatility cycle will traverse through some kind of timeframe similar to above. When will the next big sell-off be? No one can really predict this. However, there is one indicator we can monitor that is fairly reliable. Keep an eye on $VIX when our signal turns "Fully Bullish", most likely this week. If this bullish cycle approaches its end without $VIX dropping below 18, $VIX may be setting itself up for a really big spike that can reach 44 - 45. If this happens, $SPX $NDX IWM can drop lower than 1/24 levels. Key price levels This table was last updated on 2/4.
 Trade Plan Given that $VIX is likely to spike up quickly at the start of the week, we will do a quick trade to capture this spike in $VIX and the corresponding drop in IWM. Once the composite signal turns “Fully Bullish”, we will place buy orders to scale into SPXL and TQQQ between L1 and L2. Click here for Signal Trades spreadsheet. Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX here. All volatility charts have turned "Approaching Bullish" by end of 1/24. This signal is still intact. Last Sunday we wrote: looking for $VVIX chart pattern to anchor at or below its 200-hour EMA green line. That is exactly what $VVIX did this past week. Now $VVIX should form a quick lower-high spike (relative to 1/24). This will shake out the weak hands and turn the signal "Fully Bullish".  Hedging by Traders: Put/Call Ratio The signal from P/C ratio chart has turned "Approaching Bullish" by end of 1/24. This signal is still intact. In P/C ratio daily chart below, its 20-day EMA is forming a flat top. This indicates that the signal is getting close to turning "Fully Bullish".  Hedging by Dealers Read more about how options are impacting the market and the effects of dealer hedging here. Below are the updated volatility trigger levels.
As of this writing, all indices are still below their trigger levels. This means dealer hedging will fuel volatility rather than dampen it. So expect big price swings to continue both up and down. Market Breadth: Advance-Decline Net Issues And now some good news for the bulls. The signal for all A/D charts have changed to "Fully Bullish" by end of 2/4. This bolsters our thesis that the composite signal is about to turn "Fully Bullish", after one more volatility spike to shake out the weak hands.  Other Signals for Big Picture Consideration The Dark Pool Index (DIX) shows silent money had a huge bullish reversal early last week. The buying has eased up somewhat, but is still continuing steadily throughout the week. This is an important under-the-hood bullish indicator for the short term. However, price actions in the bond market were quite bearish last week. Bond volatility is grinding upward slowly. These are not bullish long-term signals for stocks. Click here for Signal Trades spreadsheet. To Read We urge you to read this article about risk management and position sizing. 1% Risk Rule If you are new to trading 3x leveraged ETFs like TQQQ TNA SOXL FNGU, read: Why 3x ETFs like TQQQ lose money over the long term If you are new to trading inverse ETFs like SQQQ TZA SOXS FNGD, read: The risks of investing in inverse ETFs 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. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 7:15 PM ET - Sunday Key dates this week  Tuesday is the start of Lunar New Year, which means there may be a lot less participation from Asian markets. This may have notable impact on futures trading. The next monthly option expiration (OPEX) date is 2/18. Expectations for next couple weeks Our system composite signal technically turned "Approaching Bullish" by end of day on 1/24. This signal still intact, and is getting more ripe. In other words, we are getting very close to "Fully Bullish". Friday's price actions ended with a big bullish move in the last 30-minutes of the trading day. This further confirms this. Our system signal is sensitive and accurate in gauging true market sentiments. It tells us that the odds are high that $SPX $NDX IWM will continue to rise for the next 1-2 weeks. Keep in mind though that the signal cannot tell us for sure the magnitude of the move (how high), or the smoothness of the move (choppy vs. steady). Expectations for next couple months So the short-term picture is improving for the stock market. However, looking out over the next couple months, there's a strong possibility that $SPX $NDX IWM may see lower lows (relative to 1/24). This is because on the weekly charts, $VIX $VXN $RVX are forming the kind of pattern that makes it possible for them to really surge. This is further confirmed by VIX futures chart. VIX futures are in backwardation, which means that traders are really worried about the market right now, as opposed to later this year. In fact, VIX futures show that they are quite worried about February and March in particular. So with OPEX coming up on 2/18, we may see our system signal turns "Fully Bullish", but does not last very long before becoming bearish again. Key price levels The key price levels are actually still the same for the indices. However, we've added SPXL to the table as we plan to trade this 3x ETF going forward.  Trade Plan Click here for Signal Trades spreadsheet. Since the composite signal is a very ripe "Approaching Bullish", we will look to scale into SPXL and TQQQ on Monday. Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX here. All volatility charts have turned "Approaching Bullish" by end of 1/24. This signal is still intact. We are now looking for $VVIX chart pattern to anchor at or below its 200-hour EMA green line. Then bulls should hope that $VVIX forms a quick lower-high spike (relative to 1/24). This will shake out the weak hands and turn the signal "Fully Bullish".  Hedging by Traders: Put/Call Ratio The signal from P/C ratio chart has turned "Approaching Bullish" by end of 1/24. This signal is still intact. Bulls should hope that P/C ratio chart forms a quick lower-high spike (relative to 1/24). This will turn the signal "Fully Bullish".  Hedging by Dealers Read more about how options are impacting the market and the effects of dealer hedging here. Below are the updated volatility trigger levels.
As of this writing, all indices are still below their trigger levels. This means dealer hedging will fuel volatility rather than dampen it. So expect big price swings to continue both up and down. Market Breadth: Advance-Decline Net Issues The signal for all A/D charts have changed to "Approaching Bullish" by end of 1/27.  Other Signals for Big Picture Consideration The Dark Pool Index (DIX) shows silent money had a huge bullish reversal early last week. The buying has eased up somewhat. This is still an important bullish divergence. Like stock indices, most bond ETF charts (TLT IEF LQD JNK) showed bullish end of day pattern on Friday. And bond volatility (MOVE index) has formed another lower high relative to 11/26/21. This supports the short-term bullish move for stocks. Click here for Signal Trades spreadsheet. 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 suggestions. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 5:45 PM ET - Sunday Key dates this week The big event this week is of course FOMC announcement on Wednesday.  In addition, these gorillas are reporting earnings this week: MSFT, TSLA, AAPL. Their earnings will either be the catalysts to end the sell-off, or fuel to continue the meltdown. Expectations for this week Our system composite signal technically turned "Fully Bearish" on 1/11. And stocks have been selling off hard since then. We must confess that we underestimated the magnitude of this sell-off. At this point, the signal is still "Fully Bearish", which means more selling ahead, until the signal changes to "Approaching Bullish". However, market conditions have reached extreme oversold. So we are likely to see a bit of stabilizing and possibly a relief rally early in the week, ahead of FOMC. Depending on what the Fed says on Wednesday, there's a chance the relief rally can turn into a real rally. But the Fed may fumble it, and trigger a meltdown in the market. This is what happened back in December 2018. So stay nimble. Key price levels The table below is fully updated.  Trade Plan We are planning on two different trades for this week. On Monday, we will monitor for the setup for a bounce in TQQQ. This will be a single quick trade, possibly from L1 to L3. Regardless of how high TQQQ can rise, we will exit this trade ahead of FOMC. Note that if the signal remains "Fully Bearish" while UVXY SQQQ TZA pull back (due to $SPX $NDX IWM bounce), it's a setup for re-entering UVXY SQQQ TZA. But we won't enter this bearish setup, or anything, ahead of FOMC. Simply too risky. Instead we will be monitoring for post-FOMC market reactions, and the setup of the next trade based on that. Click here for Signal Trades spreadsheet. Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. All volatility charts show "Fully Bearish" signal right now. The 20-day EMA blue line is still coiling higher, confirming the bearishness. However, a big spike formed last week. So volatility may be getting close to starting the topping process.  Hedging by Traders: Put/Call Ratio The signal from P/C ratio chart is still "Fully Bearish". We need to see at least a "same-high" or "lower-high" pattern from P/C ratio chart for this signal to edge towards "Approaching Bullish". Unfortunately, the 20-day EMA blue line is still coiling higher. So nothing has changed yet.  Hedging by Dealers Stock market has been in a vicious cycle since the sell-off started. Steady selling triggered margin calls and panic in traders. So they sell calls and buy puts. Dealers have to take the other side of those trades, and they have to hedge their books to stay neutral. Dealer hedging in this case results in them selling into weakness and buying into strength. This causes volatility to rise. Rising volatility makes traders panic even more. So they sell more calls and buy more puts. And on it goes. Below are the updated volatility trigger levels.
Market Breadth: Advance-Decline Net Issues The signal for all A/D charts based on their EMA lines are all "Fully Bearish" right now. But we have been noticing this pattern. NYSE A/D weekly net issues are forming higher lows while $SPX is forming lower lows relative to Dec ‘21. This is possibly a very early bullish divergence. Keep an eye on this, but don't hold your breath.  Other Signals for Big Picture Consideration The Dark Pool Index shows silent money has not been actively buying $SPX. Bond volatility (MOVE index) is ended last week with a clear lower high pattern, relative to its November peak. This may be short-term topping process for bond volatility, and if true, it is an early bullish divergence for stocks from bond messages. In fact, bond ETF (TLT IEF LQD) weekly charts show that they have formed bullish candles at key support levels last week. One could argue that money is rotating into bonds for safety. But the fact that big money is buying bonds at all in the face of sharply rising rates and inflation is a good thing for the financial system overall. Click here for Signal Trades spreadsheet. To Read We urge you to read this article about risk management and position sizing. 1% Risk Rule If you are new to trading 3x leveraged ETFs like TQQQ TNA SOXL FNGU, read: Why 3x ETFs like TQQQ lose money over the long term If you are new to trading inverse ETFs like SQQQ TZA SOXS FNGD, read: The risks of investing in inverse ETFs 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 suggestions. We trade 3x ETFs such as TQQQ TNA SOXL LABU UVXY using proprietary analysis of volatility. Subscribe to get our latest analysis, trade plans and live intraday trades. Current trade record here. Updates 3 PM ET - Monday 1/17/22 Key Dates Here is the economic calendar for this week. The most important date is OPEX this Friday.  Price Projections The table of key price levels has been fully updated.  Earnings season has started last week. There is hope for a market boost. But based on our analysis of P/C ratio, volatility and market breadth (see discussions further below), we think the boost may be short-lived. Volatility is very likely to continue rising higher as we approach OPEX this Friday. There is a high probability that we will see price movements as follows this week:
After 1/21, volatility is likely to drop while stock indices start to rise again. But be careful here as there is a rising possibility of a real big volatility spike in the first half of 2022. We will report more on that as the data unfolds. Trade Plan In this environment, we prefer to trade quick positions, and/or intraday positions, until after OPEX. Our plan is a quick trade to capture the bounce, then a bigger quick trade to capture the drop. See updated plan in spreadsheet. Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. All volatility charts are showing "Fully Bearish" signal.  Hedging by Traders: Put/Call Ratio The signal from P/C ratio chart is now "Fully Bearish".  Hedging by Dealers Below are the updated volatility trigger levels. If price is above the trigger level, dealer hedging will change from "fueling volatility" (big price swings) to "dampening volatility" (calm price movements).
The Deep January Options Expiration On OPEX Friday 1/21, there are deep in the money calls worth over $125 billions set to expire. The magnitude of this expiration is likely a catalyst for volatility. Even if you don't trade options, this big wave is going to rock your boat. So we recommend that you read the full explanation of this important expiration here. Market Breadth: Advance-Decline Net Issues The 20-day EMA lines on A/D charts for NYSE, Nasdaq and small caps are heading down. The message here is "Fully Bearish".  Other Signals for Big Picture Consideration The Dark Pool Index shows silent money has eased up on buying $SPX. We are keeping this in mind, but not assigning a lot of weight to it yet. Bond volatility (MOVE index) continues to form lower high relative to late November. We interpret this to mean that the bond market is not in turbulent mode for now, and consider it a bullish divergence from bond prices. A calm bond market is necessary for a calm stock market to follow. Junk bonds (JNK HYG) is dropping to retest its 1/10 low. On the weekly chart, JNK HYG EMA lines are converging, setting up a vulnerable pattern for junk bonds. This is a bearish warning for stocks. Click here for Signal Trades spreadsheet. To Read We urge you to read this article about risk management and position sizing. 1% Risk Rule If you are new to trading 3x leveraged ETFs like TQQQ TNA SOXL FNGU, read: Why 3x ETFs like TQQQ lose money over the long term If you are new to trading inverse ETFs like SQQQ TZA SOXS FNGD, read: The risks of investing in inverse ETFs 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 suggestions. |
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