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Click here for Signal Trades spreadsheet. Updates 2 PM ET - Friday 4/29/22 Bullish divergence observed in multiple indicators $VIX daily chart below shows how $VIX has been forming lower highs since 4/26. Meanwhile $SPX is approaching a same low. This bullish divergence is true for $VXN relative to $NDX, and $RVX relative to IWM. We also observed a bullish divergence in Nasdaq Advance/Decline net issues between today and 4/26. Today's numbers are not as negative as reflected in $NDX price drop. So our signal remains "Approaching Bullish". But we need to be patient for a retest of the low to reveal a low-risk setup to scale into bullish positions.  Updates 10:49 AM ET - Friday 4/29/22 Fake breakout >> $SPX to retest 4/27 low
Updates 9:11 AM ET - Friday 4/29/22 $SPX to retest 4/27 low "Approaching Bullish" means the volatility signal is in transition. Negative economics news this morning functions as the catalyst for a likely retest of $SPX 4/27 low at 4163. We need to remain flexible to trade during transition period. We will hold off bullish entries for now and look to trade a quick bearish SQQQ position just for today. We'll update the spreadsheet shortly. Updates 12:30 AM ET - Friday 4/29/22 Volatility Signal: "Approaching Bullish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. Despite the big earnings miss from AMZN, AAPL came through. Futures found support and are trying to rise as of this writing. Most importantly:
The signal is now "Approaching Bullish".   Short-covering rally Friday and Wednesday Today Friday is the weekly options expiration date, when a large number of puts will expire. This should trigger a certain amount of short-covering activities from dealers, thereby supporting a bullish day potentially. Next Wednesday 5/4 is the date of FOMC announcement and Russian bond default. Again, a large number of puts are expected to unwind on or after 5/4. This will prompt dealers to unwind their own short hedges by buying back equity and futures. This should provide fuel for a big short-covering rally on or after 5/4. That is when the signal will most likely become "Fully Bullish". Key Price Levels The levels below are still relevant for now, especially between L3 and L6. We will update these levels this weekend.  Trade plan
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.
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Click here for Signal Trades spreadsheet. Updates 2:45 PM ET - Wednesday $VIX: Forming possible top $VIX $VXN $RVX $VVIX are all forming tops. The signal is likely to be transitioning to "Approaching Bullish", but we need to wait until after AAPL earning announcements after 4 PM ET. If "Approaching Bullish" is confirmed, we'll be positioning to scale into SPXL and TQQQ/TNA, possibly starting tomorrow. Updates 10:30 PM ET - Wednesday $VIX: "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. $VIX daily chart below shows its 20-day EMA blue line had just crossed over its 50-day EMA red line. The blue line needs to rise a bit more before it can form a topping pattern. So $VIX is likely to rise a bit more, possibly to 36. As we discussed yesterday, there are signs of very early bullish divergence.
 While the signal is still "Fully Bearish", $SPX $NDX IWM are likely to drop down in one last segment, before the signal can become "Approaching Bullish". Short-covering rally on or after 5/4 Traders are holding on to their puts ahead of FOMC and Russian bond default date next Wednesday 5/4. After this date, traders will unwind their puts. This will prompt dealers to unwind their short hedges by buying back equity futures. This should provide fuel for a big short-covering rally on or after 5/4. That is when the signal will most likely turn "Fully Bullish". Key Price Levels The table is the same as yesterday.  Trade plan If Nasdaq futures bounce substantially overnight, $NDX is likely to start the last leg down. We want to capture this drop with a re-entry into SQQQ. 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. Click here for Signal Trades spreadsheet. Updates 11:42 AM ET - Wednesday 4/27/22 Signal: "Fully Bearish" (but getting close) Despite the after hour drama yesterday, $VIX $VXN $RVX $VVIX did not gap up in huge fear this morning. In fact, $VIX is forming a short-term top right now. We think that market will consolidate a bit before dropping one more time. This next drop may be the last leg down. However, $SPX and $NDX need to retest L2 successfully before any stability can arrive. Our SQQQ re-entry this morning resulted in a tiny gain. We are going to stay on the sideline for now because market is entering consolidation phase intraday. This is difficult to trade, and likely will result in us giving back our gains. So we're going to just monitor for a setup to re-enter SQQQ. Updates 1:30 AM ET - Wednesday 4/27/22 Signal: "Fully Bearish" (but getting ripe) $SPX $NDX IWM all sold off hard on Tuesday, and even harder after hours when GOOG missed its earnings. That was an unpleasant surprise. Market conditions are certainly looking bleak right now. Today Nasdaq percentage of stocks above their 200-day MA has dropped down to 22%, about the low of early March. This is actually good news for the bulls. The sooner Nasdaq gets down to 10% or lower, the sooner we approach capitulation. But the end is usually a scary drop, designed to shake out lots of weak hands.  $VIX: "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. $VIX $VXN $RVX all rose sharply on Tuesday as stocks dropped. The message here is "Fully Bearish". However, there are signs of very early bullish divergence.
  Key Price Levels So all of the above indicators are telling us that the end of this bearish volatility cycle is near. But be careful. The signal is not "Approaching Bullish" yet. Rising $VIX means traders are ramping up their hedges. And they are unlikely to unwind these hedges ahead of FOMC and Russian default date next Wednesday. The table below has been fully updated. Observe that L1 is a pretty steep drop down, especially for $NDX and IWM. While the signals may ease up their bearish message, price may accelerate downward. Market bottom tends to be a very violent place to be, so we need to be careful here. As of this writing, futures are trying to climb up a bit. We may see $SPX gaps up to 4220 at open, along with $NDX and IWM. $SPX $NDX IWM may try to climb back up to L4. However, the odds are high that $SPX $NDX IWM will drop again, going possibly all the way to L1 by early next week.  Trade plan The signal is still "Fully Bearish". So we plan to re-enter SQQQ when $NDX bounces back up. We think $NDX at L4 is a possible level, but we'll have to monitor at open for the actual entry price. 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. Click here for Signal Trades spreadsheet. Updates 12 AM ET - Tuesday 4/26/22 $VIX: "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. Keep an eye on $VIX daily chart below. $VIX is unlikely to be done rising until its 20-day EMA blue line rises above its 50-day EMA red line and forms a top. It is close to doing this, but we need to see this pattern forming before declaring "Approaching Bullish".  Equity Put/Call Ratio: Bullish divergence maybe? However, we are starting to observe signs of early bullish divergence. We discussed this divergence on $VVIX chart for Monday. By end of day Monday, we observed that between 4/22 and 4/25, the P/C ratio has formed a lower high, while $SPX $NDX IWM dropped. This is an early bullish divergence.  Key Price Levels Here is our interpretation of these diverging indicators.
 Trade plan 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. Click here for Signal Trades spreadsheet. Updates 10:30 PM ET - Sunday Upcoming key events this week The biggest market movers this week will be the earning reports from big tech. See their dates below. Thursday will be particularly explosive with the GDP pre-market and AAPL earnings after hours.  Key events in May We should also keep an eye on the following key dates. Next Wednesday 5/4 may be a big day with FOMC announcement and potentially the Russian bond default happening.  Volatility Signal: "Fully Bearish" As we wrote on Friday, $VIX has surged out of the gate in a big way. It is very likely to reach 34 this week. It may even stretch as high as 39 before it climaxes. But it may not do so in a single day. Still we should expect to see $VIX 20-day EMA blue line rising up steeply.  , While our system signal has been warning us about the impending bearishness starting on 4/4, it took a while for $VIX to show its effect. There is no doubt now that the market is starting to panic for real. This is most evident in the increased demand for hedging via buying puts. $VIX term structure has flattened. According to SpotGamma, this indicates aggressive hedging in near dated options – a signal of fear. Volatility of Volatility: maybe bullish divergence Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. Interestingly enough, under the hood, volatility of volatility ($VVIX) is sending out a possibly early bullish message. Observe $VVIX daily chart below. $VVIX 200-day EMA green line is starting to drift downward. This indicates that $VIX itself is becoming less volatile. So there's hope for the bulls.  Big Picture Signal: bearishness approaching the end We take comfort in this chart below. This is Nasdaq percentage of stocks above their 200-day MA. As you can see it is getting ready to drop sharply. This percentage is likely to retest 20% early this week. It would be great if it drops down to 10% or lower soon. That is a capitulation level. If Nasdaq gets down to this level and stays down for at least a week or two, it would be a very bullish setup to launch the next bull market in the big picture context.  Key Price Levels The table below has been fully updated. These new price levels will be in focus this week.
Bleak, isn't it? We suspect that when $NDX reaches L1 is when we may see the end of this bear market.  Trade plan
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. Click here for Signal Trades spreadsheet. Updates 2:12 PM ET - Friday 4/22/22 Signal: "Fully Bearish" It would seem that when $VIX is ready to say "Fully Bearish", it's doing so at the top of its lungs. $VIX 2-hour chart below shows how $VIX finally formed a fully bearish W bottom, similar to the W bottom formed on 1/13. After that W bottom formed, $VIX spiked from 18 to 39 in a few days. $VIX is now in a very similar setup. Therefore, we may see $VIX spike to 34 early next week.  Trade Plan
Updates 2 AM ET - Friday 4/22/22 What's with the signal ? That was tough dealing with the rapid change in signals between Wednesday and Thursday. One of the thing that makes it challenging is that implied volatility ($VIX) has not been rising with the same magnitude as the drop in price for $SPX $NDX IWM. While traders have been buying puts and selling calls, this is not happening at the same magnitude as the period between November and March. As a result, $VIX and $VVIX are not showing the same kind of patterns that we can predictably rely on. However, in looking at SVXY chart below, we can see an important pattern has formed. SVXY is the reverse ETF of UVXY. It moves in the same direction as $SPX. We know that $SPX has been forming clear lower highs between 4/5 and 4/21. Meanwhile SVXY has not dropped that much, and has just finally formed a same high pattern as seen in its 2-hour chart below. A same high pattern for SVXY is bearish as you can see from previous same highs. So for now we consider the signal to be "Fully Bearish" again.  Because of the under-hedging, we can't use $VIX and $VVIX as leading indicators as reliably. But we can use their patterns for confirmation. For now, we have to focus on price patterns themselves for $SPX $NDX IWM. The most bearish of them all is $NDX, especially after Powell's comments on Thursday. There is a good chance that $NDX will end up revisiting the low zone of 2/24 or L1.  Key Price Levels The table below is the same as yesterday.  Trade plan It sure has been painful to end up with a substantial loss on our UVXY position, and then to see UVXY climb up sharply again. But these things do happen in trading, no matter how experienced you are. We try to learn from our loss and use the data to fine tune our system. Going forward, with the current under-hedged environment, we cannot reliably trade UVXY. So we are going to trade SQQQ for the bearish drop, and TNA for the bullish rise. For Friday, the likely move out of the gate is a bounce. This is based on price actions of futures (ES NQ RTY) as we write this. We plan on trading this quick bounce via TNA, but with the following caveats:
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. Click here for Signal Trades spreadsheet. Updates 9:18 AM ET - Thursday 4/21/22 Signal Summary: "Fully Bullish" Stock futures turned "Fully Bullish" overnight. We made the mistake in underestimating how fast volatility dropped, and in our UVXY trade. Sometimes this happens, no matter how experienced you are. The only thing to do at this point is to cut the loss, learn the lesson and move on. In switching to the bullish trades, we'll trade both TQQQ and TNA as small caps is showing a great deal of bullishness right now. We'll post updates very shortly for spreadsheet. Updates 7:15 PM ET - Wednesday Signal Summary: "Approaching Bullish"
Below is $VVIX (volatility of volatility) daily chart. Observe the big doji formed in the low zone on Wednesday. In our experience, a $VVIX doji or hammer formed on the daily chart after a big drop typically is a pivot pattern. In other words, $VVIX is very likely to rise from here. However, it is unlikely to surpass its 200-day EMA green line. This is tough resistance and it would take a lot of panic for $VVIX to rise above it.  Key Price Levels The table below is the same as yesterday.
 Price Actions "Approaching Bullish" is a transitioning period. And this transition may last a bit longer than normal. The current market is not gripped by fear or panic. But it is not filled with bullish enthusiasm either. It seems market participants are weary ahead of FOMC announcement on May 4, and ahead of earning season. According to data from SpotGamma, there is moderate demand for put buying and call selling. There is very little demand for call buying. Since traders are not rushing out to buy puts, implied volatility as measured by $VIX has been low. This is good news and bad news for the bulls.
So what we may see before FOMC announcement on May 4 is a sideway narrow range market. As $NDX daily chart below shows, we may see price bounce back and forth between L2 and L3, before breaking out or breaking down after May 4.  Trade plan The trade plan is pretty much the same as yesterday.
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. Click here for Signal Trades spreadsheet. Updates 1:10 PM ET - Tuesday 4/19/22 Key Price Levels The table below has been fully updated.
 Signal Summary: "Approaching Bullish"
Below is $VIX 30-minute chart. Observe the multiple spikes forming a large broad top. The latest spike was formed on 4/18 and it was a lower high. This is a strong suggestion that volatility is dropping. Note that the 200 EMA green line is beginning to tilt downward. We want to see this green line continuing to drop, in order to confirm the "Approaching Bullish" signal, and to turn it into "Fully Bullish".  Furthermore, as we discussed above, L2 is a very significant support level. It is the low of 4/18. We need to see $SPX $NDX IWM successfully retest this level in order to build a base to climb up from. A successful retest of L2 is definitely a "Fully Bullish" signal. Keep in mind that all these conditions may become true, and $SPX $NDX IWM may still bounce around between L2 and L3 for multiple days before breaking out (or breaking down). Trade plan
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. Click here for Signal Trades spreadsheet. Updates 1:29 PM ET - Tuesday 4/19/22 Signal: "Approaching Bullish" In the earlier section for today, we discussed indicators that we look for that would signal the end of the bearish selling. This morning we got it in the form of NQ (Nasdaq futures). NQ 30-minute chart below showed that after two attempts, NQ was able to hurl itself over the 200 EMA green line. This is a signal that there's strong bullish momentum building up. Therefore, this turns our signal to "Approaching Bullish". There is a low probability that NQ (along with all the other stock indices) would just take off from right here. The more likely scenario is that ES NQ RTY as well as $SPX $NDX IWM will retest the low zones of this week before surging into a new bullish segment. We show in the chart below a possible path for NQ. A retest of 13880 is likely. A successful retest of this zone 13730 - 13880 will be our "Fully Bullish" signal. Trade plan:
 Updates 12:30 AM ET - Tuesday 4/19/22 Key Price Levels The table below is the same as yesterday. We're monitoring for the possibility that the signal will turn "Approaching Bullish" at about L2 for $SPX and $NDX.  Signal Summary: "Fully Bearish"
According to SpotGamma report at end of day Monday: ...it was calls that came for sale in SPY and puts purchased in QQQ. It appears that options traders essentially used rallies today to short the major indices. This was fairly large flow, and we anticipate it adding to the negative gamma position for tomorrow. This further confirms our "Fully Bearish" signal. Here are a few charts to show more visual confirmations.   When will the signal turn "Approaching Bullish"? We consider the signal to be "Approaching Bullish" if either one of these conditions becomes true:
Going long SOXL is a "risk-on" trade. So if SOXL looks ready to rise, market conditions are most likely ready to turn bullish, regardless of volatility patterns. Trade plan
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. Click here for Signal Trades spreadsheet. Updates 10:30 PM ET - Sunday Upcoming key events There are 2 key dates that may see a rise in $VIX. First is April VIX options expiration this Wednesday. Once these options expire, we may see a fresh rise in demand for new $VIX calls (long volatility) and equity puts (short stocks). This demand may increase substantially as traders feel the need to hedge ahead of FOMC announcement on May 4.  Key Price Levels The table below has been updated for all but IWM TNA. L1 is a strong support level, and this is where we expect the current sell-off to end.  The Big Picture: bad news and good news We've been relying on the Percentage of Happy Stocks chart to show us a pretty accurate snapshot of big picture market moods. ("Happy Stocks" are stocks that are above their 200-day MA). Below is the Nasdaq Happy Stocks chart. There are two important messages on this chart. Bad news: Last week we wrote this about the percentage of Nasdaq Happy Stocks: It is on its way to retest 20% zone. This path seems to be happening for not only $NDX, but also $SPX and IWM as well. This signal is currently "Fully Bearish". We're unlikely to see real recovery before Nasdaq tests 20%. Good news: This is a chart pattern that we typically see at the end of a bear market, not at the beginning. This pattern is close to capitulation. The percentage may bottom out anywhere between 20% and 10%. After that we typically see a very bullish sharp rise back up as a new bull market starts.  Volatility confirms "Fully Bearish" Read more about $VIX $VXN $RVX $VVIX and the effects of options and hedging on the market here. On 3/29, volatility of volatility ($VVIX) gave us the initial warning that market conditions were "Approaching Bearish" as a new volatility cycle was starting back up. Since then, $VVIX has been coiling upward. $VVIX 20 EMA blue line and 50 EMA red line are about to cross over the 200 EMA green line. As you can see from previous patterns, this is typically a setup for $VVIX to surge. We may see $VVIX revisits the high of March 8.  Meanwhile $VIX weekly chart showed that it has formed a couple of contracted weekly candle, anchored on its 200-week EMA green line. This is typically a setup for $VIX to surge.  Supplemental Indicators: confirm "Fully Bearish" (mostly)
Dealer hedging: $SPX $NDX IWM are currently below the key levels where dealer hedging turns to "fueling volatility". This means that dealers are now buying strength and selling weakness, potentially creating big swings in price. This is typical of "Fully Bearish" conditions. Nasdaq is the leader on the way down Keep an eye on $NDX. It has a good chance of finding bottoms at February 24 low. When $NDX finds strong support, $SPX and IWM will also.  Trade plan While the signal is "Fully Bearish", we will focus on trading SQQQ and UVXY. We won't attempt any counter-signal trades because our record for those trades have not been as successful.
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. |
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