Updates for Monday 10/10/22

Click here for actual trade in spreadsheet.
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Updates 9:24 AM ET - Monday 10/10/22

First key levels cleared but no SVXY confirmation yet
Overnight ES NQ RTY cleared their key levels (see below).   They are likely to reach up to R1 first, and clearing that to R2 where serious resistance lies.

We're not seeing SVXY confirmation discussed in Trade Plan below yet.  We're holding off adding the second half TNA position. Just managing the half position entered on Friday for now. 

We're monitoring SVXY 5-minute chart.  SVXY needs to clear 48.8 to increase the chance of a bullish bounce today.

​Updates 12 AM ET - Monday 10/10/22

Upcoming key events
This is the week of inflation data with the Producer Price Index on Wednesday, and Consumer Price Index on Thursday.  On top of that we have FOMC minutes being released on Wednesday as well.  Retail Sales report on Friday will be monitored for signs of slowing demand.

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.   

It is likely to be a big and bumpy bottom, where ES swings multiple times between 3570 and 3650.  We may not see the arrival of another bear market rally until Oct OpEx (10/21).
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Market breadth suggests coming stock bottom
Despite bearish price actions Fri 10/7, NYSE A/D formed a clear higher low EMA pattern on its daily chart as shown below.   Same with Nasdaq.

Furthermore, the weekly charts of NYSE and Nasdaq percentage of stocks above 200-day MA are both forming big W bottoms.

​All of this indicates that while market breadth is terrible, it is stabilizing and improving.   That is typically what we see at short-term bottoms.

Volatility suggests coming stock bottom
The sell-off on Friday after the job report was sharp and furious.   At the end of the day, ES NQ RTY looked ready to keep marching to a lower low.  But $VIX formed a lower high pattern relative the the sharp spike on 9/30.   

A lower high $VIX is a pre-requisite for possible short-term market bottom.  This indicates that while traders may be actively hedging with puts, puts are not that expensive and there's no panic yet.   

We can see in $VIX hourly chart below its 20-hour EMA blue line has tagged its 200-hour EMA green line, just like what it did back in early May.  This is precisely the pattern we were hoping to see.   And we may be in for a period of $VIX forming multiple tops over multiple weeks like it did between early May and May 20 before $VIX dropped substantially.   

Key price levels
As of this writing, ES NQ RTY are attempting to build overnight support after gapping down and dropping sharply to set up a possible bear trap.   Keep an eye on the following price levels.

ES:  If ES clears 3655, it can rise up pretty quickly to reach 3680.  Clearing that it can get to 3730 before serious resistance.  Otherwise, ES may retest 3572.

NQ:  If NQ clears 11100, it can rise up pretty quickly to reach 11250.  Clearing that it can get to 11375 before serious resistance.  Otherwise, NQ may retest 10890.

RTY:  If RTY clears 1705, it can rise up pretty quickly to reach 1720.  Clearing that it can get to 1740 before serious resistance.  Otherwise, RTY may retest 1650.

Trade Plan
One way of entering long is to place a buy stop order for when EQ NQ RTY just clear their respective first level (i.e. ES clears 3655).   You can scale out half at R1 and half at R2.  This might be useful if you cannot monitor price at open (9:30 AM ET).

For us, we prefer to have visual confirmation via SVXY.   This ETF is the inverse of $VIX.   So it moves in the same direction as ES NQ RTY, but with volatility closely factored into it.   

Observe SVXY 5-minute chart below.   Note on mornings when at close to open, SVXY 20 EMA blue line crosses over its 50-EMA red line.  That's a very bullish  setup for a quick swing trade.   

It's even better if both the 20 EMA blue line and 50 EMA red line cross over the 200 EMA green line.  So we'll be looking for this visually bullish setup on SVXY 5-minute chart pre-market before entering long.   

We must confess that we got a little carried away on Friday with the half position TNA entry.   Lots of times emotions get the better of you as a trader.  At least it was only a half position.

We are turning this into a quick swing trade rather than building up a runner position.  There isn't a good setup to enter a runner bull position yet.  Not until we see at least a 2nd SVXY W bottom on its 30-minute chart.

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. ​​​​