Updates for Friday January 5, 2024

• We trade stock market swings based on VIX, via SVIX UVXY TQQQ TNA and more.
• Current trade record here. ​
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​Updates 1:30 AM ET - Friday

Upcoming key events
Jobs report is likely to bring about a relief bounce for ES NQ RTY.  Read more economic analysis here.

​Key S/R levels
Most levels have been lowered to reflect the scope of the selloff.

​Expect a moderate selloff after a quick bounce to retest R1
In the big picture context, current market is still in a bull trend.  However, as we've been sharing with you, ES NQ RTY are starting a moderate selloff,  a big dip within the bull trend.

ES NQ RTY have been dropping since Dec 29, and are rapidly approaching the new lower S1 levels.  After 5 days of selling, they are likely to bounce back up to retest resistance at the new R1. The job report may provide the catalyst for this bounce.  

The bounce is unlikely to last for very long. ES NQ RTY are unlikely to rise above resistance at R1.  After that ES NQ RTY are very likely to resume the drop, which may go all the way to support level at S2.
​
This selloff is likely to last until after FOMC on January 31.   After that we are likely to see the big-picture bull trend resumes.

How did we arrive at this projection?   Based on the indicators below.

Market breadth has dropped sharply
We've been sharing with you about McClellan Oscillator (Stockcharts.com $NYMO) which measures market breadth.  We wrote that once this oscillator turns negative, it will launch a selloff period.  This oscillator has dropped to below zero since Jan 2, and has been dropping sharply since.

​This indicates that selling momentum has picked up substantially, and market is now in a moderate selloff period. The sell period typically lasts from 3 to 6 weeks, as highlighted in yellow below.  This is why we project that the current sell period will likely last until FOMC on January 31.

​VIX VVIX and VIX futures are all rising
VIX VVIX and  VIX futures intraday charts have formed W bottom patterns.   They are all rising in a tightly coiling pattern, indicating more selling is to come.

​VIX may dip a bit while ES NQ RTY bounce, but it will resume the climb and will pick up speed once ES NQ RTY reach resistance at R1.  If VIX spikes up to the zone 16 - 16.5, ES NQ RTY are likely to drop all the way down to support at S2.

Rate rises as junk bonds formed a top
10-year Treasury yield (US10Y) has been rising since Dec 27.  Junk bonds (JNK) has been forming a clear top on its daily chart.   They confirm the selloff.

​Our personal trade plan
VIX has been coiling too much, making it difficult to successfully trade UVXY.  So we have new buy orders to enter TZA instead to capture the selloff.  We want to capture the drop in RTY from 2030 (R1) to 1867 (S2)

​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 trades.