Updates for Monday 12/5/22

Click here for Signal Trades spreadsheet.

Updates 2:29 PM ET - Monday 12/5/22
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$VIX builds a base before multi-week rise 
$VIX gapped up this morning, and at this point it is rising up sharply.   Since the start of this year, $VIX zone between 18.5 and 21.5 has been a pivot zone that launches multi-week rise in $VIX.   We may see that coming later in December.

However, before $VIX can rise for multiple weeks, it needs to base for a few days, in the zone between 18.5 and 21.5.   We may be starting this basing process today, which implies that ES NQ RTY are soon going to encounter bearish head wind from $VIX.  But we need to see $VIX retests 19.5 again before we can confirm that the bull market rally is topped out.

Key S/R levels
ES NQ RTY retested at a lower level than we anticipated this morning.   Below are the updated S/R levels.  ES NQ RTY may retest the new S1 support level Monday or Tuesday.

A successful retest here will enable ES NQ RTY to resume the rise.   They may reach into the resistance zone R1 - R2 by CPI next Tuesday.  But things may unravel after that for the bulls as $VIX breaks out of its base and begins its multi-week rise.

Our Trade Plan:  Get ready to exit long
So in short, ES NQ RTY and $VIX are transitioning to bearish conditions for stocks.   This bearishness may not last long as $VIX may not rise higher than 27.   But we do want to use $VIX basing period to exit TQQQ and look for setup to test TZA.

Click here for Signal Trades spreadsheet.

Updates 11:30 PM ET - Sunday
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Upcoming key events
This week is lighter in terms of news.   The Producer Price Index (PPI) report on Friday will give a few early clues before the Consumer Price Index (CPI) report next Tuesday.   That is immediately followed by FOMC announcement on next Wednesday.

As we wrote on Friday the real key date that may turn out to be a major pivot point for the current bear market rally is OpEx on December 16.   You can re-read the explanation here.

​Earnings releases this week
Chart courtesy of Earnings Whispers.

Market breadth:  supportive of stocks​

Volatility:  supportive of stocks for this week
We haven't visited volatility of $VIX ($VVIX) in a while.  That is because it has been marching down.  But now, $VVIX 20-day EMA blue line is starting to go sideway.   If it follows the pattern we drew below, then when $VVIX 20-day EMA blue line crosses above its 50-day EMA red line, we're likely to see a sharp spike in $VIX.   Along with that sharp spike may be a sharp drop in ES NQ RTY.

When might this volatility happen?  Again, around OpEx on 12/16.

But don't panic. Below we show you what this sharp spike in $VIX may look like.  We are likely to see $VIX rises up to the zone 22 - 24.  But it is likely to then drop possibly to a lower low as $VVIX drops as well.

This will result in a clear lower-high pattern for $VIX, and this is very supportive of stocks continuing to rise (after a quick pullback while $VIX rises to 22 - 24).

Key S/R levels
The levels are the same as Friday's.   ES NQ RTY may still retest S1 one more time before rising this week.

Where will ES NQ RTY drop to when $VIX spikes up to 22 - 24?   Hard to say right now.   First, we need to see if ES NQ RTY can reach R2 by OpEx on 12/16.   If yes, then ES NQ RTY may retest S1 - S2 one more time.   

​Our Personal Trade Plan
Given that ES NQ RTY may retest S1 on Monday, we are going to lower TQQQ stop to start Monday, then raise it after NQ retests S1 successfully.   

Basically we plan to hold our TQQQ runner position and just trail the stop up.  The true exit signal will be when $VVIX and $VIX get ready to surge, as described above.

​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.