Click here for Signal Trades spreadsheet. Updates 12:30 AM ET - Thursday 9/1/22 Mid September will be full of fireworks There are some very important dates around mid September.
It will be very interesting to see how traders and fund managers position themselves with their stock options expiring the Friday before FOMC, and VIX options expiring the same day as FOMC. One way or another, there will be fireworks around those dates, though it is a bit early right now to determine the swings. Big-picture signal: bearish (but no panic yet) $VVIX 4-hour chart below is forming a familiar pattern, and it's not a comforting one for the bulls. Observe how $VVIX 20 EMA blue line and 50 EMA red line have bunched up and risen up together from a big drop. Once this pattern shows up, it's a high probability that a lot more bearishness will follow. And once these 2 lines cross over the 200 EMA green line, ES NQ RTY may experience some really big drops. This is because the crossing tends to be the setup for a big volatility spike. Even a small spike at this point can cause some big psychological damage. Keep in mind that we may not see the blue and red line cross over the 200 EMA green line until close to OpEx on 9/16. Short-term signal: bounce coming As of this writing, ES NQ RTY are continuing to drop. However, their RSI readings (4-hour charts) have been in oversold territory for multiple days. So the possibility of a bounce is high. It may not occur early on Thursday, but likely late Thursday or on Friday during weekly options expiration. The bounce may bring price back up to these strong resistance levels.
Trade plan We plan to re-enter SQQQ via two positions: runner (for bigger profit), and quick profit (so we don't go home empty). We plan to enter when NQ bounces back up to the zone around 12513 and $VIX retests the zone around 24. 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.
0 Comments
Click here for Signal Trades spreadsheet. Updates 1:15 PM ET - Wednesday 8/31/22 Big-picture signal: bearish (but no panic yet) Powell's speech on 8/26 certainly turned market's mood to bearish, and traders loaded up on puts for hedging. This in turn raised volatility as shown on $VIX 30-minute chart below. Market breadth is negative, confirming the bearish outlook for stocks. $VIX 200 EMA green line on its 30-minute chart continues to rise sharply which confirms the big-picture bearish signal. However, so far there has been no stampede to buy puts at any cost. If that has happened, we would have seen $VIX gap up hugely for the last couple days. It did not. $VVIX 30-minute chart confirms this with its 200 EMA line rising ever so gently, instead of a sharp surge upward. Short-term signal: minor bounce As of this writing, ES NQ RTY are attempting to bounce. They may reach the following key levels by tomorrow.
These levels are strong resistance, and it is unlikely that there would be enough buyers stepping in to enable price to surge above them. In fact, what is more likely to happen is price will bounce up to these resistance levels, while $VIX drops down to tag support around 24. Then the stage will be set for volatility to rise again, and price to drop again. We may see ES NQ RTY coil downward slowly until OpEx on 9/16. Trade plan Our goal at this point is to trade both runner and short-term bear positions, but all via SQQQ. If VIX doesn't gap up overnight, we'll exit UVXY to redeploy capital into more SQQQ. The reason is that without sufficient panic, UVXY will not rise enough to combat its daily decay. 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 7:15 PM ET - Monday Big-picture signal: bearish; short-term: bearish We wanted to get this post out early because $VIX chart pattern at end of day suggests a possible surge in volatility tomorrow Tuesday. Trade plan Our goal at this point is to trade bear positions via SQQQ and UVXY. We will have 2 positions:
We have manually bought 1/2 position of UVXY after hours to begin the scaling-in process. 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 12:38 PM ET - Monday 8/29/22 Big-picture signal: bearish; short-term: reversal-to-mean bounce We wrote this last night: Note that as of this writing, ES NQ RTY seem to have found support and is trying to bounce. The current big-picture signal is bearish, so this is basically a reversal-to-mean bounce. All of this is still true. Price actions so far are choppy. The resistance levels at this point are:
We personally are not trading the reversal-to-mean bounce. We plan on entering SQQQ when NQ reaches close the resistance zone above. Updates 10:30 PM ET - Sunday Upcoming key events The big picture: bearish The big rally from 6/16 to 8/19 seemed to have been built on two premises: inflation has peaked, and the Fed will soon pivot to dovish. Powell's speech on Friday put to rest that false assumption. It is interesting to read the following WSJ article, which offers an opinion on why the Fed's tough talk may be temporary. However are some additional data points to keep in mind.
July PCE may have shown price softening a bit, but looking at the latest charts for key items from above, we think that inflation is likely to rise a bit more again. Hard to keep price down when copper and corn are rising, and oil may soon join the party. Market breadth is dropping sharply >> bearish
Rising volatility >> bearish In $VIX 30-minute chart below, $VIX 200 EMA green line is rising sharply. This turns our big-picture signal to bearish. $VIX is certainly capable of reaching 31-32 at this point. In fact, it may go as high as 35 before the big-picture signal turns bullish again. How low will price go? $SPX has formed a very bearish shooting star candle on its monthly chart for August as shown below. Nasdaq and small-cap charts show the same pattern. Market is now in a bearish regime. So how low can price go? We think there is a good chance that $SPX and the rest of the indices will retest the lows of mid-June in September, or at the latest in October. Where price goes after that depends on the success of this critical retest. Trade plan Our goal at this point is to trade bear positions via SQQQ. We will have 2 positions:
There are 2 ways to enter now that we have a clearly established direction for the 200 EMA line. Wait for pullback to 200 EMA line (15-min chart): If you can't monitor the charts closely at open, then you need to project price pullback using the 15-minute charts of ES NQ RTY. Basically, we want to enter bear positions when price rises back up and tags the 200 EMA green line. This is strong resistance for the indices. So project where price may reach in order to get to the 200 EMA green line on the 15-minute chart. Place buy order for your bear positions there. Use buy stop orders to enter at open: Using SQQQ 5-minute chart below, we will enter using this technique as long as its 200 EMA green line is rising (5-minute chart).
If we get stop out, we will reenter one more time if:
For our own SQQQ entry on Monday, we are going to rely on the buy-stop orders. We don't have projections yet for the entry point. We'll update pre-market. Note that as of this writing, ES NQ RTY seem to have found support and is trying to bounce. The current big-picture signal is bearish, so this is basically a reversal-to-mean bounce. ES NQ RTY are unlikely to rise above their 200 EMA green lines (15-minute charts). So there may be an opportunity to enter bear positions if this reversal-to-mean bounce runs into resistance at that key 200 EMA line. 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 11:50 AM ET - Friday 8/26/22 PCE number came in softer than expected. Powell's speech is perceived as more hawkish than what traders were hoping for. This combination is actually better in the context of fighting inflation. But market wants what it wants, and that is the hope of a rate cut. So the short-term bullish bounce that started on 8/23 is likely to be ending. Keep in mind though that $VIX needs to base a bit more before it can seriously take off. So look for $VIX to be basing in the zone of 21.7 - 22.5 today into Monday. We've updated our trade plan to exit TQQQ and scale into SQQQ. Click here for Signal Trades spreadsheet. Updates 12 AM ET - Friday 8/26/22 The big day is upon us. Don't forget that at 8:30 AM ET, the Personal Income & Spending report comes out. The Fed does pay close attention to these figures, especially now that they are more "data-dependent". Big-picture signal: transition to bearish $VIX continues to slowly fill out its W pattern. Here are the setups to look for from Friday into early next week. Bearish: $VIX retests the zone between 19.2 and 20.5, fails to drop lower, and starts to reverse upward from there. We think there is a high probability that this scenario will unfold. Bullish: $VIX drops to below 19 and keeps going. Short-term signal: bullish bounce Within that context, for the very short term, we are likely to see the bounce in price continues for ES NQ RTY. This is a high probability, unless Powell says something really drastic that spooks the market. Key price levels
If the short-term bullish bounce is to continue, then during or right after Powell's speech, we are likely to see a very sharp drop in price first. But then price will not break down. And from that failure to break down comes the sharp reversal upward. Look for these sequences as a result of Powell's speech. ES: retests the zone around 4110, then bounces up to around 4300. NQ: retests the zone around 12825, then bounces up to around 13740. RTY: retests the zone around 1910, then bounces up to around 2030. Trade plan We are holding onto our current quick bull TQQQ position to capture the bounce from support. We still have 2 bear positions planned via TZA since we expect that ES NQ RTY will not be able to rise above mid August highs. These orders are planned but not placed yet, as we still need more confirmation. 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 1:30 AM ET - Thursday 8/25/22 Choppy trades until Friday, then a bit of fireworks There is a tricky trading period coming up. In looking at ES 4-hour chart below, you will notice that the range between 4080 and 4200 is a very important zone. ES got stuck in this zone in early June for over a week, which eventually stopped the bear market rally (5/20 - 6/9) and launched the drop to lower low. ES got stuck again in this zone from 7/28 to 8/10 before managing to rise out of it. After the sharp drop in price since 8/18, ES now landed back in this zone and is finding short-term support here. Notice that ES is sitting just above its 200 EMA green line, which is starting to flatten. ES NQ RTY all have this similar pattern, and have been trying to rise up from 200 EMA support zone in the last 2 days. But they have not succeeded, and they probably will have another choppy Thursday. Then on Friday we have 2 major catalysts for rising price possibly. The first catalyst is Powell's speech at 10 AM ET. This is almost like FOMC pre-announcement of their rate plan. So it has the power to move the market a lot. And it could move it up or down, depending on how market participants perceive the message. The second catalyst is that Friday is the weekly OpEx. While it's not as big in scale as the quarterly OpEx coming up on 9/16, it will remove some of the puts currently in place. These puts contributed to rising $VIX. As they expire, $VIX will drop and there is moderate amount of fuel for a short squeeze. So there is a good chance that ES NQ RTY will be rising from support back up towards their 8/18 highs on Friday. ES could rise up as high as 4270 by early next week. Then range-bound in bigger range until OpEx 9/16 However, we have doubts that ES can rise above 4300 in the short term. We think that traders will buy more puts early next week, raising $VIX again in the process. Price will drop back to support again which means somewhere near the 200 EMA green lines for ES NQ RTY (4-hour chart). This range bound trading is likely to continue until the big quarterly OpEx on 9/16. This means we may see ES oscillate in the range from 4080 to 4300 until then. $VIX to drop first before rising $VIX 4-hour chart below shows that $VIX has run into resistance for now. This means that traders are not very fearful yet. They are not rushing out to buy puts and jacking up volatility in the process. They bought some puts, and some of those puts will be expiring on Friday. So there is a good chance that $VIX will retest the zone between 19.2 - 20 again before rising again. And $VIX is unlikely to surge above 24.6 until after quarterly OpEx on 9/16. Trade plan Between now and Friday, we are holding onto our current quick bull TQQQ position to capture the bounce from support. This bounce is likely to happen Friday into Monday as explained above. We still have 2 bear positions planned via TZA since we expect that ES NQ RTY will not be able to rise above mid August highs. These orders are planned but not placed yet, as we still need more confirmation. 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 12:15 AM ET - Wednesday 8/24/22 Big-picture signal: transition; short-term signal: bearish The big-picture signal is derived from $VIX $VVIX charts which show that volatility is likely to be building a base to surge. The short-term signal is derived from the direction of ES NQ RTY 200 EMA lines on their 30-minute charts. These are all dropping. $VIX: short-term surge or short-term basing? Below is $VIX current 30-minute chart. Observe that its 200 EMA green line is rising up sharply. If $VIX really surges from here, this line will spike up. And that's actually a bullish setup for stocks. Why? In this scenario, some catalysts make traders panic suddenly. They rush to buy puts, which means dealers will short stock futures to hedge their own books. The net result is a lot of selling into weakness. This propels price downward sharply while causing implied volatility to surge hugely. But it takes a lot of fear and energy for volatility to stay up high. The most likely scenario that unfolds when that happens is we have a big pullback for ES NQ RTY. But these puts expire by 9/16, providing fuel for a big short squeeze. However, we don't think this convolutedly bullish scenario is unfolding. Yes, traders are buying puts and selling calls, and dealers are shorting futures to hedge. But so far the selling appears to be unfolding at a gradual pace. In response, $VIX and $VVIX rose, but they have not erupted like a geyser. This is actually more bearish. When $VIX spends time building a base, it is building up momentum to really surge for a sustained period. Take a look at $VIX 30-minute chart from 3/29 to 4/21. Observe how its 200 EMA green line went sideway for multiple weeks. $VIX coiled back and forth across this key green line. And then it erupted on 4/21 and stayed bearish for a whole month. Bulls should be very concerned if this pattern of basing $VIX unfolds. We may see $VIX goes sideway until Powell's speech this Friday. Then we may see $VIX dipped one last time before taking off. Trade plan The difficulty in trading while $VIX is basing and going sideway is it's very choppy. It's very hard to time $VIX swings precisely. So while we monitor $VIX for the big picture signal, we need to keep an eye on the inverse ETFs such as SQQQ TZA SPXS. Using their 15-minute charts, we can monitor the directions of their 200 EMA lines a bit more clearly. That line can help us position our trades. Another reason for monitoring SQQQ TZA SPXS is that they may start to climb up while $VIX is still going sideway. This happened back in early April as well. We are going to trade TZA to start this bearish process. We will monitor for an entry when TZA tags its 200 EMA green line again. See TZA 15-minute chart below. If TZA fails to find support here, it is likely to retest the low of 8/16. That's where we would enter short-term bear TZA for quick profit, and big-picture bear TZA for capturing the bigger ride. 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 12:45 AM ET - Tuesday 8/23/22 Signals On Friday we had posted $VIX 15-minute chart to show how the short-term signal has turned bearish. This signal stayed bearish through Monday, confirmed by dropping price, $VIX gapping up and market breadth dropping sharply. At this point, ES NQ RTY are quite oversold on a short-term basis. Therefore a bounce is likely to happen. This bounce actually aligns with what we are expecting to see coming up on $VIX chart: a W bottom as shown below. This W bottom is necessary for $VIX to build up momentum to really surge. Note how $VIX formed this W bottom in November, January and April before really surging. For now though, $VIX needs to retest 19-20 to form that W bottom. If it dips down into that low zone and recovers, it is likely to surge, possibly up to 30-31. This will turn the big-picture signal bearish. Trade plan As $VIX forms its W bottom, ES NQ RTY are likely to retest the highs of last week. That is where we plan to enter big-picture bear and short-term bear positions via SQQQ. If time permits, we may do a quick bull trade as ES NQ RTY bounce back up on Tuesday. But the important focus is on entering the bear positions. 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 10:55 AM ET - Monday 8/22/22 $VIX likely to tag 24, dip and then climb higher $VIX gapped up this morning, and is likely to try to climb up and tag the zone 24-25. It is unlikely that $VIX will rise higher than than immediately. In other words, no major panic yet. Instead, $VIX is more likely to form the complex W bottom pattern we discussed earlier (see below). Back in January and in April when $VIX formed the W bottom, it rose sharply up, then dipped back to form a same-low / higher low pattern before really taking off. This is likely to happen again. We think the stage is being set for $VIX to climb higher after that, possibly to retest 30 - 31. But it is also unlikely that $VIX would surge beyond that. So what we are looking at in the big picture context is for $VIX to form a lower high relative to 6/16 top. This means ES NQ RTY may be heading down to retest 6/16 bottom. Unless you are day trading, don't rush into place your bets for big-picture trade yet. Let $VIX finish its W bottom pattern. For today, we personally are looking at a quick trades to capture $VIX retesting its recent low. We'll update the spreadsheet shortly. Updates 12:30 AM ET - Monday 8/22/22 Upcoming key events The big picture: transition to bearish is possible, but not guaranteed There are different "wind conditions" pushing on equity market right now. Bullish tailwind:
Bearish headwind:
It is very difficult to trade stocks based on macro conditions. However, it is important to monitor the strength of the US dollar. USDJPY and USDEUR have been climbing up at a sharp rate since 8/11. This is a strong bearish warning for stocks. Note also that Powell is scheduled to speak this Friday. This will be treated almost like FOMC rate announcement since the real FOMC is not until 9/21. Market breadth is dropping sharply >> bearish
Volatility: $VIX is basing to rise short term Market is entering a tricky period here. It could be undergoing a big dip to ease up the overbought condition, brings on more buyers and resumes the bullish trend with renewed vigor. Or this could be the setup to launch a new bearish trend. There is no easy way to tell. But we have found in the past that $VIX does send out some reliable signals to look for in this kind of condition. On Friday, we discussed how it's time to closely monitor $VIX various 200 EMA lines. Another way to monitor it is to look for the small W and big W patterns as described below. Right now, $VIX is in the process of forming a small W similar to the one formed between 3/19 and 4/5. $VIX needs to tag the zone between 19.2 - 19.5 quickly and then turn up. That will complete the small W pattern. This process is turning the short-term signal bearish. From the small W pattern, $VIX is likely to rise up to about 22 - 23. If $VIX drops from there to retest the zone of 19 - 20 one more time and surges out of there, then it is forming a big W similar to 4/21. Volatility will really surge and the big-picture signal will turn bearish. There is no way to determine ahead of time if $VIX will form the big W pattern or not. It may just drop from the 22-23 zone and keep dropping past 19. Therefore we must remain unbiased and let $VIX chart tells us where it is going. Key levels After $VIX finishes forming the small W, it is likely to spike up to 22-23, and price is likely to drop to these levels to look for support:
Trade plan We've annotated our trade orders in the spreadsheet for different conditions. 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 1:15 PM ET - Friday 8/19/22 Market is feeling the effect of expiring calls as dealers are selling their cache of long stock futures, previously purchased to hedge their books against sold calls. The net effect is a pullback in price for ES NQ RTY. Short-term signal has turned bearish It is time to pay close attention to $VIX various 200 EMA lines. On $VIX 15-minute chart below, $VIX 200 EMA green line is starting to go sideway. $VIX is building a base to climb higher short term. This turns the short-term signal to bearish. Big-picture signal is still bullish The big-picture signal is still bullish. Here's the sequence we need to monitor.
This sequence would yield a big W bottom and make $VIX 200 EMA on its hourly chart go sideway. That would indicate $VIX is about to spike up substantially, possibly reaching 29-30. That would turn the big-picture signal to bearish. But until the above sequence is carried out, the big-picture signal is still bullish. Trade plan We got stopped out of our intraday bear SQQQ at breakeven. We expect ES NQ RTY to undergo choppy sideway range trading while $VIX oscillates around 20. Therefore we don't intend to trade any more today. Updates 8 PM ET - Thursday Brief early updates tonight due to a scheduling conflict. Warning shots for short-term signal
These are warnings that the short-term signal is very likely going turn bearish very soon. Is the big-picture signal bearish yet? No. We can track this using SVXY (inverse ETF of $VIX). It's a little easier to visualize than to stare at $VIX chart. When SVXY 200-hour EMA goes sideway for multiple days, it will turn the big-picture signal bearish. Key levels When the short-term signal turns bearish, $VIX is likely to spike up to 23-24, and price is likely to bounce at these levels:
Trade plan When NQ drops to the key support level above, we will initiate our big-picture bull TQQQ and short-term bull TQQQ. We don't expect this to happen until early next week. As for trading on Friday, it will be an intraday bull or bear position depending on the morning setup. 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. |
Archives
December 2024
Categories |