Click here for Signal Trades spreadsheet. Updates 4:37 PM ET - Monday 11/14/22 Today's trades We entered TNA swing position today to test the possibility that ES NQ RTY would find enough buyers to take off. But they didn't. TNA swing position got stopped out, but our decision to tighten the stop to breakeven meant that we tested at no cost. This is the key to successful trading. Find a low-risk setup to test a thesis based on key signals. Carefully manage risks. Then we can either harvest the profit, or get out with zero or minimal loss. Updates 10:42 AM ET - Monday 11/14/22 $VIX is still dropping Despite the drop in ES NQ RTY this morning, $VIX is dropping and SVXY is rising sharply. This is bullish for stocks. So we've updated the spreadsheet to raise our TNA buy order to 38.5, the low of this morning. Updates 12:15 AM ET - Monday 11/14/22 Upcoming key events This week's big event that may be a turning point for the bear market rally is OpEx on Friday. Earnings releases this week Chart courtesy of Earnings Whispers. Big retailers will be reporting this week: Walmart (Tuesday) and Target (Wednesday). There will be a great deal of scrutiny on the impact of inflation and consumer sentiments on their earnings. Nvidia is also reporting on Wednesday. This is the bellwether stock for the chip industry. Why did the market rally so much since Thursday (11/10)? The current bear market rally actually started since October 13, right after the CPI release. You may recall the scary sharp drop after the numbers came in quite hot. It certainly looked like stocks were heading for a massive crash. But then they reversed sharply. That significant failure to drop and the sharp reversal upward forced traders to close out their protective puts. This triggered a massive short squeeze because dealers had to cover their own protective shorts in stock futures as well. (Previously dealers shorted stock futures to balance out the effect of selling puts to traders). That was actually the launch of the October bear market rally. ES NQ RTY all rose, then dipped, then resumed the rise on October 21, due to the effect of October OpEx. Powell's hawkish tone at the FOMC press conference on November 2 provided traders with excuse to take profits off the table. The result was another good size dip for ES NQ RTY. But they all recovered on November 10, supposedly due to these bullish macro catalysts:
But these are macro reasons that show up after the rally has been going for a while. The technical signals have been way ahead of the macro reasons for weeks. And we will continue to focus on these key technical indicators because so far they have been quite prescient. Market breadth highly supportive of stocks Recall we reported that market breadth has started sending out bullish signals since October 3. Since then they have been continuing to rise, for both NYSE and Nasdaq stocks, as seen in the charts below. $VIX is likely to accelerate its drop $VIX daily chart below shows that its 20-day EMA blue line crossed below its 20-day EMA red line on November 4. That usually accelerates the drop in volatility, and it most certainly did, just like it did back in mid July. Now $VIX 20-day EMA blue line is about to cross below its 200-day EMA green line, similar to what it did back in late July. This will accelerate $VIX drop even more, which will be highly supportive for stocks. Key S/R Levels The S/R levels are still the same as Friday. Here is RTY hourly chart. Observe its pattern of coiling and rising 200-hr EMA green line within a rising channel. This is a high bullish pattern, and we may see RTY along with NQ and ES reach their respective R2 by early December. Bulls should beware of OpEx long squeeze Short-term technical indicators are bullish overall, but this coming Friday is November OpEx. If traders load up on a lot of calls that expire this Friday, then the effect of this expiration is likely to be a dip in ES NQ RTY price. Why? Recall that when traders buy calls, dealers have to buy stock futures (long) to balance out the effect of their sold calls. So when traders sell their calls, dealers have to sell their stock future holdings. The scale of dealer selling is big, and the result will likely be a dip for ES NQ RTY. This dip may take them back to S1. Trade Plan Quick review of our trades since November 10: Immediately post CPI, we saw that $VIX 20 EMA (30-min chart) was dropping hard. So we scaled into our bull targets (TNA runner and TNA swing positions), and we alerted you to do so. We tightened the stop on our TNA swing position to lock in partial profit. The runner position is still intact and we intend to keep its stop at breakeven for now to give it a chance to rise up to R2. In the spreadsheet, we still have a buy order to re-enter TNA. Target entry price is 37. This is approximately S1 for RTY. 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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