Are The Bears Taking Over? Do We Drop?
Plus Wednesday's Watchlist and FOMC insight
TLDR: Wednesday Watchlist at the bottom
Quick Friday to Tuesday Review:
All eyes were on Friday’s movement due to the major support levels beginning to give way. It wound up being a typical OpEx day with choppy price movement. There was no clear trend other than the opening downward movement, which continued from Thursday’s close. Going into the weekend close, however, we got a run up and things closed strongly.
We went from some ugly star/gravestone type reversal candle sticks to seeing some dojis, hammers, and other bullish reversal candlesticks. I’m not a huge candlestick trader, but I like to use them to get a general feel. In Thursday to Friday’s case, we see a bunch of negative downward type candlesticks only for the next day to show flat or bullish reversal candlesticks.
For me, this means one of two things:
We found some sort of local bottom and go back higher with buyers setting in on Friday
There is indecision in the market with swings up and down, up and down. Neither is winning out and we continually see the bullish to bearish, and back again, type patterns.
My guess is #2. If we head back lower and pierce thru some more key support levels that will move my bias more bearish. On the flip side, if we get back over some of those levels lost on Thursday, I will be more neutral unless we get a huge pop.
From today's movement, we lost many key support areas including 4020-25 on #ES_F, 400 on , and 297 on $QQQ. The market was in grind down lower mode all day. Buyers just showed up enough at the close to keep things from getting ugly. Overall, things are looking more bearish after today and I'm having trouble even finding good setups to go long.
Leading into tomorrow’s FOMC minutes release, we could see some more downward pressure or more downward chop. After the 2pm EST release, it’s anyone’s guess what happens.
It feels like we are at an inflection point both with the Fed and in the markets.
The News Events for the Week:
(Courtesy of Forex Factory):
Be prepared for some volatility around the FOMC minutes release. Be sure to know your risk and what you have on the table if something goes against you.
The FOMC minutes are important for showing what the Fed is thinking in terms of rates. We got massive jobs numbers and PPI came in higher than expected. Does this mean the Fed raises rates more aggressively? Raises rates for longer? Stays the path? Who knows…Frankly, it does not matter for us. We trade and react to what is in front of us. Let the talking heads and furus on twitter worry about being right and predicting the Fed.
The only thing we need to worry about is the risk and trades we have around these events. The events themselves don’t mean much in our terms other than extra volatility and price movement.
(Courtesy of Earnings Whispers)
A few big names are reporting this week. From the tech side, , , , are the names to watch. None of these will be massive market movers. But on the individual name and sector side, we could see good movement. has been volatile over the past few weeks with the US crytpo clampdown and general volatility in the crypto market. That could trickle over into NVDA since they are a big supplier of chips for crypto mining.
I don’t play earnings. I want the premium to come out so the plays are easier and not a lotto. The next day, we should find good plays in some of these names.
There are some stocks related to the broader economy reporting. Names such as , , and are worth keeping an eye on. These names can be predictors of how the economy is fairing. The market may not move dramatically, but these names can help give a little push.
Upside: 4080, 4050, 4020*, *4100-4125*, **4180**,4215
Downside: 4000, 3980-3975, 3950, 3915*
Well, are the bears rejoicing? Can you hear the roars? Most people are assuming the same pattern is about to follow the previous breaks. This latest rising trendline break looks similar to the one from October thru December 2022, which is similar to June thru August 2022, and so on. But, it is still early to tell for a few reasons.
First, the higher highs and higher lows are still intact on the weekly chart. Until we break 3900-3915 area, I’m in the “this is still a bull run” camp. Second, healthy markets retest levels. We have not seen a solid retest of the major downtrend line that broke at the start of the year. The downtrend line and falling wedge that formed were very significant. It would not surprise me to see that line get tested around 3900-3950. How price responds from there will give us much more insight into the next movement.
For tomorrow, it’s fairly simple. Let’s divide up the day into pre-FOMC minutes and post-FOMC minutes.
Pre-FOMC minutes, do we continue to grind down similar to the past two trading days? Or do we chop sideways right around 4000? My guess is the latter. I do not plan on taking any big positions leading up to FOMC knowing we may chop until the minutes are released. The only caveat to that is if price moves quickly thru 4000. In this case, I will be more aggressive with short positions.
Post-FOMC minutes. If we go lower, do we hold 3950 and ultimately 3915. That’s it and that’s what I’ll be watching to take positions. If I go short, I will think about taking profits in whatever ticker I’m in at or around these levels and see if runners develop. There is always a possibility of a bounce depending on movement. To the upside, can we get back over 4050 then 4100? If we get a big run up and over 4100, for me, that would be very bullish and I would be biased to the upside longer term.
Upside: 400*, 403, 407, 410-411*, 417, 420, 429, 436
Downside: 397, 393, 390*, 386
Backtest Trade Idea: 393 holds take 394 calls OR
Rejection trade idea: 400+ fails 399 puts
For SPY, it’s the same general concepts and ideas as #ES_F. Watch to see if 393 holds up. If that level fails, 390 comes into play which will also be a test of the major downward trendline. To the upside, can price get back moving over 403. 400 should be easy with any positive movement. 403, however, may take more momentum and bullish movement to clear.
Upside: 297*, 302-303, 307, 310, 313, 317
Downside: 293, 290, 286
Trade Idea: 299c>297
For QQQ, things aren’t quite as clean to the downside around these levels. If price moves down to 285-286, that is when the price movement downwards could accelerate if price doesn’t hold up. At that point, I’m guessing big breaches have already occurred on the S&P500. A long way off, but something to keep an eye on.
To the upside, I want to see things back over 297 for a push to 300. 297 is a clear cut level and most likely, will be difficult to get over cleanly.
Trade Idea: 145p<148.4
Apple fell below the steep rising trendline and today fell out of the bull pennant. Not looking so great and bearish. Typically, when we see steep trend lines fail, price comes back hard to where it came from until and stronger supply/demand zone is found. That area is most likely around the 140 area. I like the trade to the downside for a few reasons. It follows the current downward trend, we take advantage of the technical breaks, and we look to fill the gap right below the pennant. All good reasons to take the trade. Further, since Apple tends to be a slow mover, a 1 point move should yield around 35-40% and enough to take some profit off the table.
Trade Ideas: 125p<128 or 130 rejection take 125 put
That massive post earnings gap is just staring me in the face. The price movement looks blow off toppy to me. If 128 is lost, I think the gap continues to fill and price heads back towards 120-123. I also think if the trend stays down tomorrow, any sort of movement up to and around 130 would be a good place to short for a resistance/rejection type trade.
Backtest Trade Idea: 74+ holds 78c (Small size position or lotto!)
Why is this a small size/lotto? Take a look at the chart and see if you can figure it out for yourself.
AMD’s price movement looks bearish. We saw this big run up since the start of the year and currently, things are correcting. Where does price stop correcting on the daily chart? If we look back from August-ish 2020 thru June 2021, AMD was stuck in a broad channel formation with the major support level being in the 74-75 area. That is where I’m looking for a possible bounce play.
For this type of trade to work, the market, tech, and possibly the semis sector need to comply. In other words, we can’t blindly take a long trade around a big support level. If the market goes into free fall post FOMC, I would want to see some sort of bottom form in the broader markets before taking a backtest/support type long trade.
Trade Idea: 92p<94
Similar to Apple, this trade is taking advantage of a slow mover at key levels. In other words, not much movement can yield a nice result. In Amazon’s case, there’s head and shoulders formation developed. If price goes under 92, that would be a clear break lower of the formation at the same time clearing a minor support level. The next stop lower would be 90. If we are able to get even 1 point of that possible move, an options trade should see about 50% profit.
Sometimes, it’s not about picking the biggest or best movers in options. It’s about being strategic with your ticker picks and entries.
Trade Idea: 200p under 205 for aggressive early entry or wait for under 203.5
We have seen a bunch of bull flags and pennants fail. Is Boeing the next in line? If tomorrow’s price action is negative and downwards, my guess is its price will break lower. I’m fine with taking an aggressive entry under 205 on this one. Taking the 205 entry, you have the choice to take some profit at 203.5 or see if it breaks under cleanly. Further, if Boeing is showing relative weakness compared to the rest of the market, it’s a no brainer to go with the earlier entry at the 205 break.
Trade Idea: 170p<171.8
Things always look positive until they don’t. Meta showed strong relative strength today and it looked as if it wound up green in a sea of red. But, didn’t quite work out that way and broader market dynamics took over. The idea of relative strength and weakness is great but with enough power, the broader market will always prevail.
For tomorrow, it’s looking like traders want to fill the giant post earnings gap. I mentioned this last week…this isn’t a simple gap fill. There is a lot of support in the 155-172 price range dating back from June to September of 2022. Do you notice that long sideways channel? It will act as support as price tried to go lower and fill the gap.
Again, if market dynamics take over tomorrow, Meta should go lower. Also, with Meta failing to break over the falling wedge that’s developed post earnings, it’s another reason to think along the bearish lines until something changes.
On Watch: 249-250 reaction, possibly take 255c lotto
It feels like Microsoft is in free fall with all these ugly gap downs. This type of movement is quite rare for Microsoft. What does that mean? For tomorrow, not much. However, if price looks like it has bottomed around 249-250 and the market is reversing and/or grinding higher, this could be a good bounce play. This trade MUST be appropriately sized as it is somewhat of “catching a falling knife”. If I take this trade, it will be for a lotto. It is very possible price hits 249 and continues lower without much of a pause. I want to make sure my risk in the position is minimal with that in mind.
Trade Idea: 350c>343
If things move upwards and the tech market looks strong, this long trade could work. The setup isn’t ideal, however, with 343 acting as a local support/resistance zone, a pop over this would mean price also cleared out of the developed falling wedge. Further, it may invalidate the tripe top looking channel that formed over the past month. Even if that does not get invalidated, there should be enough room to get 4-5 points out of the trade. This would yield a profit of 50% with the possibility of going much higher if Netflix can continue up to 350 (or over).
Trade Idea: 60p<65
Now that the premiums and volatility have come out of ROKU post earnings, attractive trades are starting to develop. Today’s move was massive and I didn’t even have it on my radar. For tomorrow, I am not anticipating such a big move but you never know. The trade idea is pretty simple. See if price loses local support at 65 and take a short trade below that. The gap is almost filled, however, there is still room to go. If we can get 2 points of movement, (which is very. doable for ROKU) the trade should see about 60-70% profits.
Trade Idea: 190p<197
Has Tesla’s run off the local bottom finally come to an end? Very, very possible. Remember back to the top of today’s newsletter with Apple? Tesla looks ready to break its steep rising trendline. It is overdue for a pullback. We saw straight vertical movement since the beginning of the year.
If we gap below the trigger at the open tomorrow, I will still be looking for short entries on this one. Remember, Tesla’s levels aren’t always super clean due to so many people and algos trading it. Price gets shaken easily, lots of excess movement, etc. all of which allow for levels not to be black and white.
Post FOMC, it may be a wait and see what’s happening type approach. If we get lots of downward acceleration, I will be watching the 186-190 area closely. On the upside, how price gets back over 200 and then if it can approach 204-205 to continue higher. The upside is a little more difficult. Just because price clears 200, doesn’t mean I am entering for sure. I will wait to see how its relative strength is and how those levels are cleared.