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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.
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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. 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 12:45 AM ET - Monday 1/10/22 Key Dates Here is the economic calendar for this week. Jerome Powell's speech will undoubtedly be monitored closely for level of hawkishness. And the inflation data (CPI and PPI) can potentially move the market a lot too.  Looking further into January, we have two key dates. Fri 1/21: OPEX Wed 1/26: FOMC announcement Finally, all markets will be closed on Monday 1/17 for Martin Luther King holiday. Market Breadth: Advance-Decline Net Issues We start today with the indicator that has the clearest pattern. The signal from A/D line "Approaching Bearish". This is true for NYSE, Nasdaq and small cap charts.  Hedging by Traders: Put/Call Ratio The current signal from P/C ratio chart is "Approaching Bearish". From here, there are two possible scenarios for P/C ratio.
 Hedging by Dealers Below are 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).
As of this writing, $SPX $NDX IWM are all below their trigger levels. Expect big price swings to continue. Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. By the end of last week, $VIX $VXN $RVX daily charts all show the possibility of a lower high topping formation. If this pattern persists, it certainly is a bullish divergence and eventually becomes bullish tailwind for $SPX $NDX IWM. However, when it comes to volatility, we can't ignore the monthly option expiration (OPEX) cycle. As January progresses, the chart that is the most reliable keeper of this cycle is $VVIX (volatility of $VIX). $VVIX 2-hour chart below shows that it may have formed the "Approaching Bearish" signal on 1/5. Assuming that this is true, we are now looking for a same-low or higher-low pattern to form which would make the signal "Fully Bearish". Then we would expect to see $VVIX rises above its 200 EMA green line, and keeps rising until it forms its monthly spike around OPEX. Of course, none of this is guaranteed. But there is a high probability that some pattern comparable to this will unfold.  Other Signals The Dark Pool Index brings some good news for the bulls. It is showing a moderate upturn in $SPX buying. There are a few possible implications:
Bond volatility (MOVE index) eased up again on Friday. Zooming out on this chart, we observe that over the next few weeks, bond volatility is likely to drop some amount. But over the next few months, there is a strong possibility that bond volatility will really spike up big. If this happens, it will have a big impact on the stock market. Junk bonds (JNK HYG) dropped steeply last week, and may be approaching a short-term bottom. Junk bonds tend to behave more like $SPX, so this may be welcoming for $SPX bulls. But in the big picture context, junk bonds chart continues to look vulnerable. Short-term Key Levels This table is all updated except for $SPX SPY.  Trade Plan At this point, the combined signal is "Approaching Bearish". So here is our personal short-term strategy for trading. We plan to wait for this signal to turn into "Fully Bearish", then:
See updated plan in 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 8:00 PM EST - Sunday Key Dates Here is the economic calendar for this week. Friday's job report will no doubt have a lot of impact on the market.  But the big ones will be these two key dates. Fri 1/21: OPEX Wed 1/26: FOMC announcement Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. Currently the signals from all volatility charts are still "Fully Bullish". There are three possible scenarios that may show up early this week. And each scenario has a different implication. We'll be monitoring for them closely.
 Hedging by Traders: Put/Call Ratio Currently the signal from P/C charts is still "Fully Bullish". What the P/C ratio is showing is that traders and fund managers are not loading up on puts to hedge their long portfolios. Not yet. Using the P/C ratio chart to visually guide us, we still need to wait for at least one W bottom to form (20-hour EMA blue line). This may happen some time early to mid January. When this pattern shows up, then the P/C ratio signal becomes “Approaching Bearish”.  Hedging by Dealers Dealer hedging right now has a "dampening volatility" effect on the market. This is bullish for stocks. Here are the updated key price levels. If $SPX $NDX IWM drop below these key levels, dealer hedging will swing from "dampening volatility" to "fueling volatility".
Market Breadth: Advance-Decline Net Issues Currently the signal from A/D line is still "Fully Bullish". NYSE, Nasdaq and S&P small caps have been forming big W bottoms (via their 20-day EMA blue lines) since 12/1. This bullish pattern is still technically intact for all three charts. Factoring in the possible upcoming changes in volatility and P/C ratio, we would say that if the 20-day EMA blue line turns down and crosses below the 50-day EMA red line, the signal from A/D line may become "Approaching Bearish".  Other Signals The Dark Pool Index shows that silent money has eased up on their buying of $SPX during the entire last week of 2021. This may be an early warning of bearish time to come, but we have to take this information with a grain of salt as it does not track as closely as the other indicators above. Bond volatility (MOVE index) continues to form another lower high on its chart relative to the level from late November. We consider this bullish for stocks. Junk bonds (JNK HYG) is forming a short-term top. Junk bonds tend to behave more like $SPX, so this is not bullish news for $SPX. This is some thing to continue monitoring. Short-term Key Levels and Trade Plan 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 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 1:30 PM EST - Sunday Key Dates The stock market will be open this entire week, including Friday 12/31, the last trading day of the year. The economic reports are few this week.  Looking ahead into January, here are some key dates that will definitely move the market. As you can see the latter part of January may get turbulent. January 21: OPEX January 26: FOMC announcement Hedging by Traders: Put/Call Ratio Notice how the 20-hour EMA blue line is still dropping steadily below the 200-hour EMA green line in the P/C ratio chart below. The demand for puts is still declining. This leads to lower volatility, which leads to lesser demand for puts. Conditions remain "Fully Bullish" for now.  Hedging by Dealers Here are the updated key price levels below which dealer hedging swings from "dampening volatility" to "fueling volatility". Currently $SPX $NDX IWM are all above their key levels. Therefore, we should continue to see the "dampening volatility" effect of dealer hedging.
Volatility: $VVIX $VIX $VXN $RVX Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. As the demand for puts drop, volatility drops. This is most evident in $VIX 30-minute chart below. Observe how the 200 EMA green line has formed a top since 12/3, and has been declining nicely. $VVIX $VXN $RVX charts are all showing similar lower high patterns, confirming their "Full Bullish" signals as well. It would actually be even more bullish if $VIX spikes up early in the week to the zone of 22-23 one more time. That would result in another lower high spike, with the accompanying dips in $SPX $NDX IWM, and the arrival of more buy-the-dip buyers.  Market Breadth: Advance-Decline Net Issues NYSE, Nasdaq and S&P small caps have been forming big W bottoms (via their 20-day EMA blue lines) since 12/1. This bullish pattern is still intact for all three charts. Here it is shown for small caps.  Other Signals
The Dark Pool Index shows that silent money has been buying $SPX since 11/18. However, the buying appears to be ebbing last week, so we'll have to keep an eye on this. Bond volatility (MOVE index) formed another lower high on its chart relative to the level from late November. We consider this bullish for stocks. Junk bonds (JNK HYG) had a very bullish week last week. This indicates a risk-on mood, and bodes well for the stock market. Short-term Key Levels and Trade Plan 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 suggestions. |
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