Updates for Thursday 6/16/22

Click here for Signal Trades spreadsheet.

Updates 2:19 PM ET - Thursday 6/16/22

Volatility signal: still "Transition"

• Yields are topping for now >> bullish
• Dollar is also topping for now >> bullish
• SVXY has not put in that 2nd W bottom yet >> signal still the same.
• Stock indices are heading down lower low >> bearish  
• ES $SPX have gone below put wall at 3700.  Now at 3655  >> bearish
• Stock indices have a case of bad breadth  >> bearish
• No short-covering rally ahead of OpEx.
• OpEx Friday promises actions but don't jump the gun in this market.
• Monday is a holiday.

Stay patient.   Manage risks.   Or just go fishing until tomorrow.

Updates 9:15 AM ET - Thursday 6/16/22

Volatility signal: still "Transition"
This is because $VIX is poised to rise some more based on overnight actions shown on its charts.

SVXY has not formed W bottom pattern we want to see yet for signal to turn "Fully Bullish".

ES has dropped to below 3700 overnight then recovered.  RTY dropped to lower low then recovered a bit.   NQ is the only one maintaining same low as 6/14.

30-year yield is rising again, while 10-year appears to be forming a top still.

EURUSD which is a key measure of dollar, which has been tracking stock movements closely, is not ready to break out yet.   When it does, it will be very bullish for stocks.   Right now EURUSD is coiling in consolidation on its chart.

Signal has not turned "Fully Bullish" yet, so we are not entering long TQQQ just yet.   

Updates 1:00 AM ET - Thursday 6/16/22

Intermarket signals:  bullish
Most of the key macro indicators have turned substantially bullish post FOMC on Wednesday.

• 10-year and 30-year yields formed topping patterns on weekly charts.
• Bonds (TLT IEF LQD JNK) all formed bullish hammers on weekly charts.
• Oil is heading down 
• Dollar formed topping pattern on weekly chart.
• Gold is heading back down.
• Bitcoin formed multiple bullish hammers on daily chart.
• Market breadth improved across the board.

These intermarket signals are telling us that there are possibly more reasons behind this rally than just early OpEx short-covering actions.   

So what's going on?   We found an interesting explanation here.   Take a look and see if you agree with it.

Volatility signal: "Transition"
All the bullish actions above, plus bullishness for all stock indices  turn volatility signal to "Transition".   So how do we trade from here?

Take a look at SVXY chart below.   Recall that SVXY is an inverse ETF that is short $VIX.   So as volatility rises, SVXY drops and vice versa.   We like tracking this chart because its patterns are easier to read than $VIX $VVIX.

We use certain SVXY patterns as a way to identify when the signal turns "Fully Bullish" or "Fully Bearish".   Observe in SVXY hourly chart below.

• SVXY typically forms a double top above its 200-hour EMA that turns the signal to "Fully Bearish" (red arrows).
• SVXY typically forms a W bottom below its 200-hour EMA that turns the signal to "Fully Bullish" (green arrows).

So at this point, we are monitoring for:

• SVXY successfully retests 45.5 again for 2nd W bottom to form, which would turn signal to “Fully Bullish”.
• SVXY fails to rise above 51.5 again for double top to form, which would turn signal to “Fully Bearish”.

We did not see any of this yet post FOMC.   This is why we haven't entered any positions yet.

​
Key S/R levels
Despite the fact that conditions have turned bullish at a macro level as well as at the technical level, this is still a very fragile market that is vulnerable to the force of bad news.   

The massive amount of puts due to expire this Friday has been functioning as a "put wall".   Think of it as a very strong support level, and this level has been at $SPX 3700.   

As these puts expire or get monetized, there will be less protection for traders, making them more vulnerable to sudden bad news.   So we this is why we want to see the unwinding of these puts slow down a bit to stretch out this rally.  That is why we want to see retests of the lows and W bottom formation.

For example, for Nasdaq:

• If NQ retests 11232 (low of 6/14), it can build up enough momentum to possibly rise back up to 12600.
• If NQ retests higher at 11470, it can build up enough momentum to possibly rise back up to 12300.
• If NQ just takes off with no retest, it is likely to top out around 1200.

The same pattern applies to ES and RTY.

• ES:  from 3708 to 4096
• ES:  from 3770 to 3955
• RTY:  from 1691 to 1880
  
• RTY:  from 1725 to 1820​

Trade plan
Currently the sort-term volatility signal is “Transition”.  The short-term short-covering rally is starting, but we want to see a retest of 6/14 low, or as close to there as possible.  This will turn the signal to "Fully Bullish" for us to enter a Multi-day Bull position (via TQQQ).

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.