Updates for Monday 10/17/22

Click here for Signal Trades spreadsheet.

Updates 12 PM - Monday 10/17/22

Sideway 200-hour EMA
​The ideal situation for the early stage setup of a bear market rally is for ES NQ RTY 200-hour EMAs to go sideway while price swings back and forth to build a base around this key level.   The swinging price actions also serve to trap late-stage bears as more fuel for the rally.

In Sunday's notes below, we recommended to keep an eye on the 200-hour EMA for ES NQ RTY.   We should add $VIX to that list.   

• ES:  200-hour EMA goes sideway approximately at 3660
• NQ:  200-hour EMA goes sideway approximately at 11100
• RTY:  200-hour EMA goes sideway approximately at 1720
• $VIX:  200-hour EMA goes sideway approximately at  31

​
As long as this pattern continues, the bullish setup will get stronger.   So far the patterns developing this morning confirm this.   Market breadth is also steadily improving, supporting the bear market rally thesis.

In terms of trading, we are monitoring this scenario.

• $VIX tags 30 today, then begins the process of climbing back up towards 33 - 34.   
• From there, $VIX starts to march down again on Tuesday, thereby continuing to build a multi-top pattern.

Updates 8:15 PM - Sunday 10/16/22

Upcoming key events
The major market moving event this week is OpEx on Friday. VIXEx on Wednesday may have an impact too, but not as much as OpEx.

​Here are companies reporting earnings this week.

Summary
At a big picture macro level, global markets and economies are still very bearish. But the short-term signal is turning bullish, suggesting stocks are building a base for possible bear market rally.

Focus on breadth and volatility
As we wrote on Friday, now is actually a very difficult time to trade. The very bearish messages from macro conditions are deafening and distracting.  Clearly we cannot invest or trade without paying attention to macro. But we personally have yet to figure out how to time a trade successfully using macro information alone.

The reason why we managed to execute a highly successful bullish trade and avoided the bear trap post CPI on 10/13 is because we focused on the improving market breadth and declining volatility, despite super hot PPI and CPI reports.   

So we will continue to focus on these indicators for now, and try to not let those "sky is falling" chants affect how we filter our setups.

Market breadth is supportive of stocks
The daily charts of both NYSE and Nasdaq A/D net issues are improving.  Observe the rising W bottom in chart below.   As long as this holds, it tells us that more stocks are starting to rise.   

The weekly charts of both NYSE and Nasdaq A/D percentage of stocks above 200-day MA are also forming bullish patterns.  They are forming W bottom, as shown in chart below. As long as this holds, it also tells us that more stocks are starting to rise above their bull/bear threshold.

Volatility is declining
$VIX has formed a clear double top in its daily chart below.  As long as these tops hold, the pattern is bullish for  ES NQ RTY.

The chart to monitor closely is $VIX hourly chart.   Its 200-hour EMA green line needs to go sideway to continue supporting the top formation pattern.

$VVIX has also formed a clear lower high top on its daily chart, confirming $VIX double top.

Key price levels
The early part of this week is likely to be choppy, setting the stage for a more explosive move that can arrive as early as Wednesday.   However, we think it's more likely to be OpEx this Friday.

We are monitoring for price actions in the following ranges.
ES:  Price likely will swing between 3580 and 3740 multiple times.  In order for the bullish scenario to unfold, we want to see ES 200-hour EMA line starting to go sideway around 3660.   If it keeps heading downward, then the bearish momentum is resuming.

NQ:  Price likely will swing between 10800 and 11375. In order for the bullish scenario to unfold, we want to see NQ 200-hour EMA line starting to go sideway around 11100.   

RTY:  Price likely will swing between 1670 and 1780. In order for the bullish scenario to unfold, we want to see NQ 200-hour EMA line continue to go sideway around 1720.   

Along with the sideway 200-hour EMA lines, we also want to see SVXY quickly retests its low of 47.4 and then begins to rise above its 200 EMA green line on its 5-minute chart.   That's around 48.2.   This pattern would confirm the bullish signal from $VIX.

​Trade plan 
We plan to trade lightly and only quick swing trades during the early part of the week.   Our preference is to trade TNA bull positions, but we remain open if there are good setups for SQQQ bear positions.   We've outlined Monday target trade in the 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.