In any event, we did enter into 1 bull position via TNA.   The dip was barely there.   Blinked and you missed it.   Bull momentum is very strong and RTY broke out.

Bull momentum is still strong but...
ES NQ RTY are still acting quite bullish, especially RTY.  It appears ready to break out and surge a lot higher.  But we are suspicious of this setup.  Here's why.

$VIX has been dropping overall since Oct 13.  And as a result, SVXY has been rising steadily.  (Recall that SVXY is the inverse ETF of $VIX.  It moves in the same direction as ES).

At this point, SVXY has found support at its 200-hour EMA 4 times.  Typically, SVXY does not find support any more than 5 times, and the 5th time tends to be as part of a top.   

So while it's not a guarantee that SVXY bullish cycle will end, SVXY is approaching some kind of big dip.  As SVXY enters into a big dip, so will ES NQ RTY.

​Chart to study:   $VIX pattern setup for big dip in ES NQ RTY
If the dip is big, ES NQ RTY may get down into the zone between S1 and S2 before they start the next rally.  

​Our Personal Trade Plan
If the dip is small, then we'll be looking to scale into one TNA position when $VIX forms the quick spike.  Hold for 15% profit target.

If the dip is big, we will:

• Scale into one TZA bear position when $VIX bottoms near 18.
  
• Hold TZA for 10% gain.
• Scale into two TNA bull positions when $VIX forms a big spike.
• Hold for 25% and 30% gain.

Note that we have not entered any orders in the Signal Trades Spreadsheet.  We need to see what kind of pattern $VIX forms post FOMC.
​
Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.

b
Price actions: shallow dip, big dip, or bear market resuming?
During the day on Monday, we started discussing $VIX patterns to monitor that would indicate a shallow dip or a big dip post FOMC, or worse the bear market resuming.

Here are updates on the two key scenarios we'll be monitoring for post FOMC.
Shallow dip:   

• ES NQ RTY drop sharply post FOMC to S1 level while $VIX spike quickly up to around 23.   
• Then ES NQ RTY reverse back up from S1 while $VIX starts dropping steadily to support the bullish reversal.   Market breadth starts to climb again.

Big dip:   

• ES NQ RTY quickly spike up post FOMC to retest R1 while $VIX drops down to base between 18 and 20.
• Then ES NQ RTY begin to drop steadily from R1 while $VIX breaks out from basing in the zone 18-20.   
• ES NQ RTY eventually drop into the zone between S2 and S3.   They may retest S3.   Meanwhile $VIX may spike up to 26-27.
• ES NQ RTY find support and break out from S3.   $VIX forms short term top in the 26-27 zone and drops steadily.

​At this point, we think that there's a high probability that we'll see the big dip scenario plays out post FOMC.

Note that there is always the possibility of the bear market resuming.  But to really do so, $VIX must spend multiple weeks basing between 18 and 21.  So the odds of the bear market resuming immediately post FOMC (i.e. straight crash down) is low.

Our Personal Trade Plan
We don't plan on chasing the shallow dip, but we do want to capture the big dip if it comes.

In the Signal Trades Spreadsheet we have shown how we plan to scale into TZA to capture RTY big dip.   

If it turns out that all we'll get is a shallow dip for ES NQ RTY, then we'll be looking to scale into TQQQ, after NQ retests S1.   
​
Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.

​Earnings releases this week
Chart courtesy of Earnings Whispers.
​This is also a huge week in terms of earnings from big tech companies, along with other major corporations. 

Key S/R levels
Below is the updated S/R table.   The levels are slightly adjusted from Friday's table.  

However, on a multi-day basis, breadth may waning for a bit, suggesting a short-term dip coming up.

Volatility:  likely to spike while stocks dip
On Friday we shared $VVIX chart with you, and here it is again.   It shows a key pattern where $VVIX 20-day EMA blue line is getting ready to cross over its 50-day EMA red line.   When it does, both $VVIX and $VIX will spike in the process.   $VVIX may spike up to 91-93.   But we expect it to be a quick spike followed by more dropping volatility again.   ​

$VIX 4-hour chart below confirms the spike with its reversal pattern: $VIX dipped sharply at end of day, but then formed tiny hammers at key $VIX support level.

Click here for Signal Trades spreadsheet.

​Updates 2:45 PM ET - Friday 1/27/23
​
Multi-week signal:  bullish
Multi-day signal:  quick $VIX spike likely

ES NQ RTY price action are highly bullish today.   Our multi-week composite signal is bullish.  ES NQ RTY are in the process of breaking out above their 200-day EMA, and the breakout may last multiple weeks.

But today is not a good setup to enter long for the following reasons.

$VVIX chart is showing the "squeeze up" pattern.  $VVIX 20-day EMA blue line about to cross over 50-day EMA red line.   When it does, there is a good chance that $VIX will spike.  Maybe not much, but enough to give us a better entry to go long ES NQ RTY.

Market breadth is waning.  These charts are not suggesting a crash or even a major sell-off.   But they confirm that a quick dip in price for ES NQ RTY is likely to happen soon.

How soon?  We do have a pretty big week next week starting on Wednesday.  Market participants have been buying calls rather than loading up on puts.  This makes them more vulnerable to any bearish news. 

Traders are still likely to buy the dip, but first there will be dips.  Therefore we should wait for these news-driven dips to show up before scaling into long positions.

For us, we are going to monitor $VVIX closely.  A quick $VVIX spike up to 90-91 is a good setup to scale into our bull positions TQQQ and SOXL.

Dips are getting bought
Our system's signals have been projecting a bullish market breakout since Jan 5.  But it has also been suggesting a multi-day big dip happening right about now.   However, this dip has not materialized.   

Why?  Because market participants are aggressively buying dips.  This buying preference has resulted in strong multiple close levels of support for ES NQ RTY. 

Key S/R levels
Below is the updated S/R table. Note the 3 support levels. They are close together.  ES NQ RTY are capable of breaking out from any of these levels.  Furthermore, S3 has become a very strong support level at this point.  

ES daily chart below shows its 20-day EMA blue line very close to crossing over its 200-day EMA green line.  This is very bullish for stocks.   

Volatility and market breadth
All market breadth charts continue to show strong multi-week support for stocks.   $VIX EMA lines in the 4-hour chart below have been dropping steadily.  Again, this is very strong support for stocks rising.

Our projections for ES NQ RTY are still the same:

• ES NQ RTY dip down to below S1 possibly by FOMC on Wednesday Feb 1. 
• Then ES NQ RTY are very likely to break out and rise up to R3 over multiple weeks.

During the day on Wednesday, we posted an update about $VIX and how its pattern supports a quick spike in volatility.   Take a look here if you haven't read it yet.

Advance-Decline Percent charts for S&P 500 and Nasdaq 100 both show lower high topping patterns.   This doesn't typically lead to a crash or a massive sell-off.  It does typically lead to a pullback in stocks.   So these charts confirm the upcoming dip.

Click here for Signal Trades spreadsheet.

​Updates 1:29 PM ET - Wednesday 1/25/23

Reasons for re-entering TZA (bearish trade)
All of $VIX EMA lines on the daily chart have been dropping steadily.   But after this goes on for multiple weeks (which it has), typically $VIX will spike up sharply to reset itself before dropping further.

That spike is likely to happen soon, and most likely will happen around FOMC Feb 1.   This confirms the bearish setup (stuck at R1) that we observe on ES NQ RTY daily charts.

Market breadth charts also confirm the short-term pullback in stock price.

ES NQ RTY are trying to rise, but R1 appear to be tough resistance.   TZA hourly chart is now showing the formation of multiple W bottoms.   

So this creates a better LRHRHP setup to enter into TZA.   We've updated the spreadsheet with orders to scale in when TZA retests between 28 and 28.5.

Click here for Signal Trades spreadsheet.

Volatility and market breadth charts are not helpful right now to decipher the next direction for ES NQ RTY. So we are left with price action charts.  Fortunately the message from ES NQ RTY are clear. 

They are all stuck at R1 resistance levels.  Our theory is that ES NQ RTY all need to dip some amount before they can launch into a multi-week bullish breakout.

But how low will the dip go?
On Tuesday, we thought that it will be a very shallow dip, but ES NQ RTY price actions this evening show that they are more likely to dip down to the zone around S1.   This is the same as our projection yesterday.

Click here for Signal Trades spreadsheet.
​
Updates 1:00 AM ET - Tuesday 1/24/23

Volatility:  quick spike then drop
$VIX 2-hour chart below shows that it may have formed ​the first half of a W pattern.   From here, $VIX is likely to spike up perhaps to 23 as traders load up on puts to hedge ahead of FOMC.

This is a longer-term bullish setup for stocks.  This is because after the quick spike, $VIX is likely to drop from 23 down a lot lower, to below 18.   

Note that if $VIX 200 EMA green line starts to go sideway for multiple days, then it becomes a very bearish setup for stocks.  That pattern means $VIX is basing to really surge.

​Key S/R levels
NQ levels have all been updated.   ES and RTY are the same as before.​

So basically we are looking at a quick sharp dip for ES NQ RTY, ahead of FOMC next Wed Feb 1.  In the worst case scenario, they may drop all the way back to S2.   But most likely, they will revisit the zone around S1.

After this quick dip, ES NQ RTY are likely going to break out for multiple weeks. 

Our Personal Trade Plan
We are expecting a short-term sharp dip for RTY, which means a chance to trade TZA for a short ride up.  We plan to enter TZA when RTY retests the zone around 1915 again.  

Note that this is just a quick trade, so we're entering just 1 position for a 10% profit target.

After the dip, things will get a lot more exciting for the bulls. The quick dip will take ES NQ RTY down to the zone around S1.  From there, ES NQ RTY are likely to break out for multi-week climb.  We want to capture this big ride up via TQQQ, TNA and SOXL.

Click here for Signal Trades spreadsheet.
​
Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.

​Earnings releases this week
Chart courtesy of Earnings Whispers.

Stocks are building a complicated base to rise from
On Friday we discussed how stocks are building a complicated base to launch into possibly a new bull market. Please reread this analysis because it's important.

Basically, the market may start to act bearish this week by dipping sharply, bringing ES NQ RTY down, into the zone between S1 and S2.  From there, ES NQ RTY may rise up in a coiling manner to build up strength to surge above R1 for real. This is likely to be the start of a bullish period that may last multiple months.   

By bullish we mean that the 200 EMA green line on ES NQ RTY 4-hour chart will start to rise steadily

Market breadth:  big-picture bullish support for stocks
The reason behind our big-picture bullish projection is from the bullish support shown on market breadth charts.

S&P 500 Advance-Decline Percent weekly chart shows its 20-week EMA blue line climbing out of a long period being down below 0.   This is similar to Jan 2019 and Feb 2021, periods of bullish price actions in stocks.   (This same pattern applies to Nasdaq chart as well.)

The weekly Nasdaq Percent of Stocks Above 200-day MA continues to show its 20-week EMA blue line rising.  As long as this line continues to rise, conditions are supportive for stocks.   (S&P chart is showing the same pattern.)

​Volatility:  short-term bearish setup for stocks
While $VIX charts are not helpful in short term projection, SVXY (the inverse VIX ETF) shows that it's very likely going to have a sharp drop to get down close to its 200 EMA green line, dropping from 64 to around 57. 

We have seen SVXY do this before, every 4-6 weeks during a highly bullish climb in 2021.  When SVXY drops sharply, it means $VIX will rise sharply.  A sudden sharp rise in volatility tends to bring in the bears, piling on the puts, setting the stage for a short squeeze.   Short squeeze will provide the momentum to help SVXY rise again and stocks will therefore rise again as well.

​Our Personal Trade Plan
So basically we are expecting a short-term sharp dip for RTY.  This presents a chance to trade TZA (RTY inverse ETF) for a short ride up. 

We plan to enter TZA when RTY retests 1915 again.   This is not a huge trade, so only one position, for a quick 12% gain.

Click here for Signal Trades spreadsheet.

Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.

Click here for Signal Trades spreadsheet.
​
Updates 2:11 PM ET - Friday 1/20/23

Stocks are building a complicated base
We will provide more in-depth analysis and supporting charts this weekend.  But here is our updated thesis which we want to share before the weekend.

The multi-month trend is very likely going to turn up and a new bull market may start by May-June.   That is, ES NQ RTY 200-day EMA green line will turn up and start rising steadily at that point.   

But getting there is a complicated process.  There are still a lot of bears not willing to give up the belief that S&P will crash to 3000.   And the bull market will start when the majority of these bears are forced to give up and jump in to buy stocks.

The path forward may look like the dotted line drawn on RTY daily chart below.  Here are the steps.

$VIX is likely to spike from the 18-19 zone up to 24-25 zone, possibly post FOMC on Feb 1.  This will be a brief but painfully sharp spike for the bulls.  

While $VIX spikes, ES NQ RTY will drop sharply to retest S2.   NQ may even dip lower than S2.   This will be a big bear trap as bulls turn into bears, and bears will rush in by loading up on puts. These puts will function as fuel for a short squeeze later.   

If ES NQ RTY do not break down below S2, they will begin to coil their ways up to eventually break out over R1 for real.  As they rise, a short squeeze will start which will push price up even more sharply.

This is our working thesis for now.  We will need to confirm it each step along the way via $VIX, market breadth and price data.  But we are leaning bullish in the big picture, and trying to avoid a bear trap in the very short term.   

​Updates 2:30 AM ET - Friday 1/20/23

$VIX
It's time to monitor $VIX closely because it is the key to the market's next move.   Unfortunately, $VIX chart is not the easiest to decipher right now, so we are focusing on SVXY, the ETF that inversely tracks $VIX.  It has more directional moves that are clearer to analyze.   

SVXY moves inversely with $VIX, so it moves in the same direction as ES NQ RTY.   SVXY has formed the 1st top which is a bearish setup.  But SVXY needs time to form a 2nd top before it starts a real down swing.   

When SVXY starts the down swing, then the bear market resumes.

​Key S/R levels
The table below has been updated partially.   

While  SVXY top formation is bearish looking, RTY daily chart offers a potentially more bullish setup.  ​RTY 200-day EMA green line has been going sideway since November.  This is a bullish setup for the 20-day EMA blue line to cross over.

Our Personal Trade Plan
The market is at crossroad and it needs time to come to a resolution.   So we need to be careful and not overtrade at this point. 

In the spreadsheet we have shown our TZA buy orders for when RTY retests R1 around 1900.  But the orders are not placed yet as we need more bearish confirmation from SVXY and $VIX.

Click here for Signal Trades spreadsheet.

Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.

This is a very difficult market for multi-day swing trades, just as it was back in November.   We got stopped out of both of our TNA positions which is incredibly frustrating.   We should not have held on to the positions for quite as long.   Alas while the indicators tell us "bullish or bearish", they don't tell us "choppy or trending".   

While it may be tempting to enter bear positions, note that RSI is now in oversold zone on the hourly chart above.   That is not a productive setup for a bearish trade.  It is usually a precursor to a bullish reversal.

We are not re-entering any trade right now.  We are waiting for RTY to either form a double bottom while below its 200-hour EMA green line (bullish), or a double top while above it (bearish).   Those are better setups for a short swing trade.

But the much better setup for multi-day bearish swing is the buy target currently shown in the spreadsheet.   

Updates 1:30 AM ET - Thursday 1/19/23

​Key S/R level
S/R levels have been partially updated for NQ and RTY.   ES levels are still the same.

Why did the market drop so much today?
Market participants are no longer quite as worried about runaway inflation.  They are now fretting about the economy slowing down.  Read more analysis here.
 
Is the bear market rally done?
ES NQ RTY daily chart patterns show they are likely to be building a series of rising W bottoms, similar to the pattern shown below.  But ES NQ RTY are not ready to take off just yet.   As part of the W bottom, they will need to retest the low, which is likely to be S2.

We don't think ES NQ RTY will drop below S2 as part of this testing though.  That is a very strong support level, and the low of October 13 2022 is likely to be the multi-month bottom of this bear market.   

RTY daily chart below shows how the W bottom may evolve.

What does $VIX say?
$VIX three daily EMAs lines are all dropping, providing bullish tailwind for stocks.

But since $VIX has pulled too far away from its 200-day EMA, it is likely to spike back up to anchor there before dropping more. This key level is currently around 24. This spike is a bullish setup for stocks, and it would most likely correspond to ES NQ RTY retesting S2.

What about market breadth?
​Market breadth charts all show the likelihood of short-term pullback in price for ES NQ RTY.

Our Personal Trade Plan
We think that RTY will retest the zone around 1880 - 1890 before beginning to descend to retest S2.  So we plan to scale out of TNA when RTY pops back up to 1880 - 1890.

We also plan to do a small quick trade to capture RTY dropping down to get close to S2. We are not aiming to ride all the way down because it's prone to sharp reversal.   Instead we'll just take a small gain and exit.

Click here for Signal Trades spreadsheet.

Questions?
For new members who may not be familiar with the information we post in this blog, please check the glossary for more information.  You can also email us with questions directly.

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.