Updates 5:15 PM ET - Monday Scaled into bull position SVIX Per our analysis last night, we scaled in when SVIX dipped in the morning. Our target for this trade is 10% gain.  Updates 12:50 AM ET - Monday Upcoming key events This week is filled with economic data that is likely to move the market sharply.  Big picture outlook: Da bull is back? In preparation for Aug 21, we shared with you a big picture analysis. We were worried about VVIX (volatility of VIX) forming the dreaded "Coiling Towards Catastrophe" pattern on its weekly chart. Market breadth confirmed this bearishness by continuing to drop. By end of day Aug 25, a different picture emerged, one that is much more bullish. Let's take a look at the indicators. Market breadth charts formed W bottom >> bullish support By Friday, the 15-minute charts of S&P and Nasdaq percent of stocks above 200-day MA ((Stockcharts: $SPXA200R $NDXA200R) showed a clear W bottom. S&P grazed 50%, and Nasdaq grazed 62%. They both then stabilized and turned up. This suggests that stocks may be done with the big drop for now.  "Coiling Towards Catastrophe" signal failed >> bullish support For last Monday, we wrote an in-depth explanation about the big bearish signal from VVIX which we dubbed "Coiling Towards Catastrophe". By end of week on Friday Aug 25, this signal failed to materialize. VVIX 20-week EMA blue line failed to cross over the 50-week EMA red line. A key failed signal is always significant. It is saying that there is not that much volatility in the system to push VIX into the stratosphere. Not anytime soon. And after a good size sell-off, a failed bear signal is a healthy bull signal.  VIX may be forming a topping pattern >> bullish support VIX has formed a lower high pattern relative to Aug 18 peak. If VIX continues this pattern and its 20-day EMA blue line drops below its 50-day EMA red line, then VIX is on its way possibly to 13 or lower.  How long will the bull signals last? Here are the key signals that we'll be monitoring to confirm that the bull is back in charge.
If these signals start to fail, then the bull may be in trouble again. But we suspect that market will calm down between now and about mid-September. Then we may see a setup for a bearish volatility surge. However, at this point we are not sure if this September surge will send VIX above 19. If VVIX keeps grinding downward, then conditions will still lean bullish. But if VVIX anchors and starts to rise, then the bear is likely back and may come back with a vengeance. Key S/R levels All R1 and R2 lelvels have been updated. Support levels remain the same. If ES NQ RTY retest or get close to S1, that may be a decent setup to enter bull positions. They are likely to reach R1 if bullish conditions persist. They may even rise all the way to R2 by mid September.  Our personal trade plan We will be looking for a bullish setup to enter SVIX on Monday. See our buy orders in the spreadsheet. 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.
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Updates 5:47 PM ET - Monday 8/14/23 Opened new position: multi-day bull We entered into TQQQ as outlined in our trade plan earlier today. Entered just above the low of the day. This TQQQ trade aims to capture the anticipated relief rally where NQ can rise from 15000 to 15610 (S1 to R1).  Updates 12:50 AM ET - Monday 8/14/23 Upcoming key events Most of this week will be quiet until Wednesday and Friday. Read more economic analysis here.  Earnings this week Chart courtesy of Earnings Whispers.  Multi-month outlook: Bull market is still intact but needs recharging Our multi-month indicators show the bull market is still intact, but its strength is waning a bit. It will take multiple weeks of recharging to get this bull back close to full strength. If we have a big VIX fear spike in September, then this bull may be recharged enough to run through the first quarter of 2024.  Calming messages from volatility and breadth VIX daily chart below shows that it has been forming a top consisting of lower high candles since Aug 4. This suggests that VIX is more likely to drop in the short term rather than rise.  The hourly chart of S&P Advance-Decline Percent below shows a clear W bottom has been formed. These W bottoms suggest that more stocks are able to advance rather than before.  The S/R table below has all the support levels lowered.  Short-term outlook: Relief rally likely coming this week Right now market flow is very bearish:
If there is a big immediate negative catalyst, this bearish setup will create a vicious cycle of selling. We will see VIX surge hugely, while ES NQ RTY dive sharply. However, all of these bets are time sensitive. VIX expiration is this Wednesday, and equity expiration is this Friday. Most of these bearish bets will expire worthless if we don't get a big immediate negative catalyst. The calming messages from VIX and A/D Percent tell us that nothing super scary is on the horizon right now. As expiration approaches with no big bad bearish catalyst, traders will unwind their bets, and dealers will have to reverse their books, swinging over to the bullish side. This provides fuel for a short squeeze where EQ NQ RTY may rise sharply, creating a virtuous cycle in the process. This relief rally may enable ES NQ RTY to rise from S1 up to R1. They may even try to climb as high as R2, but they are very unlikely to surpass R2 for now. The Fed Jackson Hole Symposium starts on Aug 24. You may recall that last Aug, Jerome Powell's opening speech killed the relief rally in late Aug and sent the market down for another bearish leg. We may see a similar pattern at this year's symposium. We don't think a fear spike will show up until closer to that big window of weakness between Sep 15 and Sep 21 (see schedule of key events above). During this period, VIX may rise as high as 22-23, and ES NQ RTY may dip as low as S3. The good news is this fear spike should recharge the bull for another run through the first quarter of 2024. Our inner bull is hoping for this scenario to come true so that we can enter multi-month and multi-week bull positions. Our personal trade plan We have started to scale into TQQQ to capture the relief rally where NQ can rise from 15000 to 15610. After the relief rally, we are likely to see more selling. We want to wait for VIX to drop into the zone 13.5 - 14 and SQQQ to retest the zone 17 - 17.5 before entering SQQQ. This SQQQ trade aims to capture NQ dropping again from 15610 to 14686. 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. |
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