Updates for Monday 10/3/22

Click here for actual trade in spreadsheet.

Updates 12 AM ET - Monday 10/3/22

Upcoming key events
The job report on Friday will be closely watched for signs of decline.

Summary
Big picture signal is very bearish, not just for stocks but almost all asset types, all over the world.  However, a bottomming process may start soon for ES NQ RTY.   
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Big-picture signal:  bearish with potential crisis brewing
You probably have heard plenty by now about the incredible volatility in the bond market, and the brewing crisis in the currency market due to the strength of the US dollar.  The complexity of the current situation is beyond the scope of this blog, but we urge you to read this summary and the following WSJ articles that we have posted.

There are also rumors currently about the possibility of Credit Suisse on the verge of a collapse like Lehman back in 2008.   You can read more about it here.  

But before we all curl up and cry, let's zoom out and take a look at the really big picture.  While no one can reliably predict the future, we can be pretty sure that change will happen. No bull market lasts forever.  And no bear market lasts forever either. 

There were savvy deep-pocketed investors who made a lot of money buying distressed debts during the financial crisis of 2008.  Warren Buffet said “be fearful when others are greedy, and greedy when other are fearful."   So tread carefully, but keep an eye out for potential opportunities.

​Market breadth is sending out a bullish message
The daily charts of NYSE and Nasdaq advance-decline net issues are both showing rising W bottoms, most easily seen with their 20-day EMA blue lines.  If this pattern persists, it is an early but very bullish message.

Nasdaq percentage of stocks above their 200-day MA is down at 8% and is showing a potential W bottom pattern.   When it got down to 5% back in mid-June, Nasdaq formed a bottom that launched a bear market rally that lasted for two months.   

Monitor $VIX for double top
Market breadth may be giving us an early heads up for a possible bullish reversal.  But $VIX is not quite there yet.   On its hourly chart below, $VIX has formed the first spiky top, and may be on its way to form a second one. 

However, we don't want to jump the gun here.   Wait for $VIX to rise back up and tag around 34.88 again.  Also we must wait for $VIX 20-hour EMA blue line to form a double top similar to the pattern formed back on 6/16.   In other words, $VIX 20-hour EMA level cannot exceed 31.9.

SVXY needs to form W bottom
You can use SVXY (ETF to short $VIX) to monitor the inverse move in $VIX, which should match the direction of  ES NQ RTY.  We want to see a clear W bottom formed, at least on SVXY 30-minute chart.   We want to see its 20 EMA blue line crosses over its 50 EMA red line before building up long position for multi-day holding .

Key S/R Levels
The bears are in control right now.   It is highly likely that ES NQ RTY will continue to drift downward while $VIX forms a top and market breadth stabilizes.   

For Monday, look for the following S/R levels.   If ES NQ RTY can stay above S1, it is at least the first sign of price stabilizing.   If ES NQ RTY can climb back up to R2 later in the week, it is a sign that bulls are gaining strength.  

Trade Plan
Beware that ES NQ RTY can continue to drift downward while $VIX and market breadth send out bullish messages.   This is why we don't want to build a long swing or runner position yet.   

We've listed a setup for day trading on Monday that you may consider.   We are unlikely to take this trade as it will require a lot of close monitoring.

We've also shown you the potential setup for entering TQQQ runner and swing when the bottom finishes forming.

Click here for Signal Trades spreadsheet. 
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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. ​​​