Updates 12:47 PM ET - Friday 10/21/22 Volatility and Breadth are supportive of stocks
RTY has formed W bottom ES NQ RTY all rose this morning from the opening lows. RTY hourly chart continues to show a complex rising W bottom similar to the one formed between May and June. We sent out a series of alert as soon as we noticed that $VIX was continuing to drop and ES NQ RTY were turning bullish at opening. They didn't dip into the support zones that we cited last night. That is the nature of trading. It's very difficult to predict the pivot points. But we have been prepping you to visualize a bullish W bottom being formed. We showed you what to look for with $VIX and market breadth to confirm the thesis. And we said OpEx Friday is likely to be the major pivot day. So it should come as no surprise that ES NQ RTY headed up today. Here are the entries that we scaled into. Keep in mind that there will be wild intraday swings as $VIX is still yearning to rise up and tag 30 one more time. Also as long as ES is still below 3800, the way market makers have to hedge their books result in wild price swings as they need to sell into weakness and buy into strength. Once ES rises above 3800 (R1), price should calm down and start to grind up more steadily.  Updates 12:15 AM ET - Friday 10/21/22 Summary Big picture signal is bearish based on macro conditions. But short-term signal is still bullish. ES NQ RTY are building W bottom to rise post OpEx. Market breadth continues to improve, but... The daily charts of NYSE and Nasdaq A/D net issues are still forming rising bottoms. However, the weekly charts of NYSE and Nasdaq percentage of stocks above 200-day MA suggest they are capable of dipping a bit more before rising more substantially. Nasdaq weekly chart below shows a topping pattern so far for this week, while the percentage hovers at 13%. It could dip back to below 10% before rising again.  Volatility of $VIX shows a quick rise in volatility likely $VVIX formed a hammer on its daily chart below on Thursday. It is the type of pattern typically seen before $VVIX rises a bit, possibly back up to 95 before dropping again.  $VIX may not retest that high Despite these cautions, we don't think will rise back up to 34 at this point. On $VIX 30-minute chart below all of its EMA lines have been trending down. $VIX is likely to tag 32 again before dropping more substantially.  Key S/R levels
 Trade plan Our buy orders placed yesterday are still the same. 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 4 PM ET - Thursday 10/13/22 Trade results  Updates 9:46 AM ET - Thursday 10/13/22 Re-entered TNA We have re-entered TNA. (Sorry but Stocktwits messaging is not working right now). Updates 8:53 AM ET - Thursday 10/13/22 $VIX is struggling $VIX is struggling to rise above 33.5. This is NOT supportive of a massive market crash. Updates 8:46 AM ET - Thursday 10/13/22 CPI hot From CNBC: "Consumer price index rose 0.4% in September, above the 0.3% expected by economists according to Dow Jones. Core CPI, which strips out food and energy, was up 0.6% month over month, also higher than expected." ES NQ RTY dropped sharply with ES getting close to 3500. However, UVXY is not rising above October 11 high just yet. We're monitoring for now, but if UVXY forms a top above its 200 EMA (5-min chart), we may scale into TNA. Remaining flexible because market is very news driven right now. Updates 8:15 AM ET - Thursday 10/13/22 Squeeze alert CNBC headlines said futures are jumping because of the British pound. ES NQ RTY as well as SVXY have spiked up. We may have a setup for a squeeze. So we're looking at either SQQQ or TNA depending on the post CPI reaction. Don't feel compelled to jump in immediately. Updates 12:15 AM ET - Thursday 10/13/22 Market breadth is supportive
$VIX is stalling or transitioning $VIX hourly chart below shows that it has been stuck in the 33-34 range for multiple days. After a hot PPI report that exceeded projection, $VIX barely moved. So we have to ask ourselves if the market is about to undergo a short squeeze. That is certainly possible given the large amount of puts purchased for CPI hedging. They function as potential fuel for short squeeze. But the truth is no one really knows. So rather than speculating, we are going to focus on two patterns that have been reliable, and they both share one common characteristic. Bullish: If $VIX forms a true 2nd top (relative to 9/30), then conditions are supportive of a rally. But to do so $VIX 20-hr EMA blue line has to weave around its 50-day EMA red line for a few days before dropping. This means $VIX has to have a sharp dip to start, perhaps down to 31-32 (see pink arrows below). From this sharp dip, $VIX then can rise up to test 34 again before forming a top. Bearish: In order for $VIX current trend to resume with vigor and longevity, $VIX also needs to dip a bit. Again, we want to see $VIX dips to 31-21 zone to gain fuel for the next surge up.  Trade plan So we want to catch $VIX dip as described above, whether it's a setup for a $VIX top, or a setup for $VIX trend resumption. We plan to do so by looking for comparable dip in SQQQ. By the way, small caps RTY IWM TNA look promising in terms of a possible W bottom. But we need SVXY to confirm first, and SVXY is quite lethargic right now. So we will continue to monitor SVXY RTY, but not jump in just yet. Incidentally, if $VIX does form the complex top, SVXY will form a W bottom and that will be a very bullish setup for RTY. 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 10:30 PM ET - Sunday Upcoming key events Thursday and Friday this week are major market moving days.  Summary: big-picture is very bearish but a short-term bounce is possible Stocks continue to be in a very bearish trend in the big picture context, from both fundamental and technical perspective. But market may not gap down on Monday, and instead may spend the first half of this week building a short-term bottom ahead of GDP Thursday. Fundamentals are very bearish
Volatility: $VIX has taken off $VIX weekly chart below shows its 20-week EMA blue line starting to head up this past week, after going sideway for multiple weeks. This is significant as it's the type of pattern that can persist, rising higher and higher. We may see $VIX rise as high as 38 by early October.  Market breadth is bearish but may be approaching short-term bottom Below is the daily chart for NYSE Advance-Decline Net Issues. Its 20-day EMA line is in bold blue, and you can see how it's looking mightily bleak, dropping sharply since mid September. However, observe the pattern formed by this same 20-day EMA blue line back in March 2020. The current 20-day EMA blue line suggests that we may be approaching the start of a bottoming process, which supports the possibility of a short-term bounce.  Additionally, here are the percentages of stocks above their 200-day MA:
Clues that will foretell the next market move For the early part of this week, there are three scenarios to anticipate. Scenario 1: Market has an immediate crash that takes ES NQ RTY sharply below 6/16 lows. The clue to look for here is heavy and steady selling from Asia and Europe during the late Sunday into early Monday (Eastern Time zone). Scenario 2: ES NQ RTY take a little pause and then resume the selling, dropping to below 6/16 lows. The clue to look for here is ES NQ RTY rising from Friday's low (S1) to tag 1st resistance level (R1), and then drop, and keep dropping past 6/16 lows. Scenario 3: ES NQ RTY start to form short-term bottom for a minor to moderate bounce. The clue to look for here is ES NQ RTY rising from Friday's low (S1) to tag 1st resistance level (R1), and then drop, and find support to bounce at 6/16 lows. Note that in order for the bullish scenario 3 to take place, ES NQ RTY have to form bottoming patterns like these shown below. The pattern can be seen most clearly with the 20 EMA blue lines on the 2-hour charts.  Key S/R levels  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 6:15 PM ET - Monday Upcoming key events Powell's speech on Thursday no doubt will move the market. But a major market pivot is more likely to show up around the quarterly OpEx (9/16), and FOMC plus VIXEx on the same day (9/21).  The big picture: bearish Both stock and bond markets seemed to have gotten the very hawkish message from Powell on 8/26 at Jackson Hole: We are serious about fighting inflation and don't try to second guess us. Getting credit and leverage will not be cheap anymore. This means reduced economic activities which leads to reduced corporate earnings. It is increasingly likely that stock valuation needs to come down to the point where S&P P/E is much lower. The numbers suggested by various analysts are all over the map: $SPX 3600, 3200, 3000. The famous Michael Burry ("The Big Short") has sold all of his stocks based on his anticipation of $SPX bottoming at 1900 over the next few years. The truth is no one knows, because no one has the crystal ball that will see all the future events that will affect the economy. There is no doubt the bears are back in charge for now. The current trend is down. The big-picture signal is bearish. However, in the short term, technical conditions are still set up for a bounce. Market breadth supports short-term bounce NYSE and Nasdaq market breadth charts have been very negative since mid August. But as Nasdaq A/D chart below shows, the bottom is rising. In other words, the negative number is getting less negative. This suggests a bounce is likely to come. Note that NYSE and Nasdaq percentages of stocks above their 200-day MA are now back at 25% and 21% respectively. They have dropped a lot since 8/16 (from close to 50%). And they can still drop more. They potentially can spend multiple weeks below 5%. So breadth data is not suggesting that the bear market is done. It is simply saying maybe a bounce is coming this week due to oversold condition.  $VIX supports short-term bounce $VIX 2-hour chart below shows that $VIX spent 3 days last week forming a top. Then it formed a lower high pattern on Friday. This pattern suggests that volatility is likely to drop some more before it resumes rising. We may see $VIX retests the zone between 21.7 and 23.2 again.  Key short-term price levels ES 4-hour chart below shows the range 3905 - 4020 as a key support zone back in May and July. ES is likely to bounce inside this zone this week. It may even clear 4020 and rises up to 4070. That level 4070 is pretty strong resistance. It's ES 20-week EMA, and where its 20 and 50-day EMA lines are converging. So ES is unlikely to rise above it.   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 10:30 PM ET - Sunday Upcoming key events  The big picture: bearish The big rally from 6/16 to 8/19 seemed to have been built on two premises: inflation has peaked, and the Fed will soon pivot to dovish. Powell's speech on Friday put to rest that false assumption. It is interesting to read the following WSJ article, which offers an opinion on why the Fed's tough talk may be temporary. However are some additional data points to keep in mind.
July PCE may have shown price softening a bit, but looking at the latest charts for key items from above, we think that inflation is likely to rise a bit more again. Hard to keep price down when copper and corn are rising, and oil may soon join the party. Market breadth is dropping sharply >> bearish
Rising volatility >> bearish In $VIX 30-minute chart below, $VIX 200 EMA green line is rising sharply. This turns our big-picture signal to bearish. $VIX is certainly capable of reaching 31-32 at this point. In fact, it may go as high as 35 before the big-picture signal turns bullish again.  How low will price go? $SPX has formed a very bearish shooting star candle on its monthly chart for August as shown below. Nasdaq and small-cap charts show the same pattern. Market is now in a bearish regime. So how low can price go? We think there is a good chance that $SPX and the rest of the indices will retest the lows of mid-June in September, or at the latest in October. Where price goes after that depends on the success of this critical retest.  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 12:30 AM ET - Monday 8/22/22 Upcoming key events  The big picture: transition to bearish is possible, but not guaranteed There are different "wind conditions" pushing on equity market right now. Bullish tailwind:
Bearish headwind:
It is very difficult to trade stocks based on macro conditions. However, it is important to monitor the strength of the US dollar. USDJPY and USDEUR have been climbing up at a sharp rate since 8/11. This is a strong bearish warning for stocks. Note also that Powell is scheduled to speak this Friday. This will be treated almost like FOMC rate announcement since the real FOMC is not until 9/21. Market breadth is dropping sharply >> bearish
Volatility: $VIX is basing to rise short term Market is entering a tricky period here. It could be undergoing a big dip to ease up the overbought condition, brings on more buyers and resumes the bullish trend with renewed vigor. Or this could be the setup to launch a new bearish trend. There is no easy way to tell. But we have found in the past that $VIX does send out some reliable signals to look for in this kind of condition. On Friday, we discussed how it's time to closely monitor $VIX various 200 EMA lines. Another way to monitor it is to look for the small W and big W patterns as described below. Right now, $VIX is in the process of forming a small W similar to the one formed between 3/19 and 4/5. $VIX needs to tag the zone between 19.2 - 19.5 quickly and then turn up. That will complete the small W pattern. This process is turning the short-term signal bearish. From the small W pattern, $VIX is likely to rise up to about 22 - 23. If $VIX drops from there to retest the zone of 19 - 20 one more time and surges out of there, then it is forming a big W similar to 4/21. Volatility will really surge and the big-picture signal will turn bearish.  There is no way to determine ahead of time if $VIX will form the big W pattern or not. It may just drop from the 22-23 zone and keep dropping past 19. Therefore we must remain unbiased and let $VIX chart tells us where it is going.
Key levels After $VIX finishes forming the small W, it is likely to spike up to 22-23, and price is likely to drop to these levels to look for support:
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 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.
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. |
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