Updates for Tuesday 7/5/22

Click here for Signal Trades spreadsheet.

Updates 2:07 PM ET - Tuesday 7/5/22

Market lacking direction >> choppy price actions 
ES 4-hour chart below shows how market is currently lacking in direction.   

• ES ran into resistance at 200 EMA green line (3948) on 6/28 and dropped.
• ES has found support over multiple sessions in 3750 zone.
  
• Since 6/30, ES has been chopping sideway.

This is why we've been reluctant to jump in and chase any direction.   We are not scalpers, so we don't do well trading this kind of market.

At this point, we are monitoring for the following setups:

• ES retests 3639 successfully and breaks out 
• ES continues to base between 3750 and 3850 before breaking out or breaking down.

Updates 9:10 AM ET - Tuesday 7/5/22

$VIX is rising
Overnight $VIX gapped up and marched straight up.   As a result, all stock futures ES NQ RTY dropped sharply.   There is a good chance that $VVIX will gap up at open, possibly to start its reversal process that we discussed in yesterday's post (see below).

QQQ TQQQ pre-market chart patterns show more selling likely, though not necessarily a sharp drop immediately.  This is not the kind of buy-the-dip pullback that results in a low-risk setup to enter long TQQQ.  So we don't want to enter TQQQ right now.   We're monitoring for more data.

Updates 6:30 PM ET - Monday

Upcoming key events
The ISM Services Index report on Wednesday and the job report this Friday will be closely scrutinized for confirmation of a recession (more on that below).   And next Wednesday is the all important CPI report.

The big picture:  economy enters recession; bear market continues
We want to expand on the macro indicators this week as the economy has entered a key turning point:  recession.

Evidence that recession has started:

• 2Q real GDP is heading down.  This is the second consecutive quarterly contraction. 
• Yield curve inversion has started.
• Recent manufacturing PMI and ISM reports confirm that US manufacturing activities have slowed down.   
• Copper futures, a key economic indicator, peaked in early March and have been down since. 
• Wheat, corn, and soybean futures have been down since spring.
• Crude oil futures formed multi-month double tops on its chart mid June and have been dropping since.
• Dollar futures have been forming multi-tops since early May and have been dropping since.

Long-term bonds rallied in the last couple of weeks.   And we may see an attempt for equities to continue to rise (more below).   But in the big picture context, the current bear market is not done yet.   

The big picture:  $SPX key price levels
Zooming out and taking a look at key price levels on $SPX chart, we see the following key scenarios:

• $SPX ES are likely to continue to climb up from the bounce that started late Friday 7/1.  However, they may run into strong resistance in the zone 3918 - 3946.   
• $SPX ES are likely to drop down then to retest support at 3639.   This is potentially a decent support zone as it is the 200-week EMA green line level. 
• Bulls should hope for $SPX ES to bounce back and forth between 3639 and 3918 for multiple weeks, building up a strong base for a breakout.
• Bears should hope for a quick test of 3639, followed by failure. This opens the door for a big drop down to 3360.

​Short-term volatility signal:  "Transition"
Zooming back in, $VIX daily chart below is telling us that it is likely to drop early this week to retest 24.   A drop in volatility is bullish for stocks.   

However, $VVIX tells us that it is likely to rise soon.  Take a look at $VVIX hourly chart below.   Note how it tends to reverse upward whenever it has dropped for multiple days, and has pulled far away from its 200-hour EMA green line.

So we may see $VIX drop first to 24, then rise from the zone around 24 back up to 30-31.   This actually supports our price projections from above for $SPX ES.  First a quick rise in price to 3918, then a drop to 3639.

Rising market breadth supportive of stocks

• NYSE and Nasdaq Advance-Decline net issues are on the rise.   
• NYSE percentage of stocks above 200-day MA has risen back up to 21%, from June low of 5%.
• Nasdaq percentage of stocks above 200-day MA has risen back up to 18%, from June low of 4%.
  

Trade plan
We'll monitor to enter Quick Bull TQQQ on a pullback early Tuesday, aiming to hold until it retests the high of 6/27.

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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