The S&P 500 (/ES) is in a downtrend, and the weekly squeeze is firing short. The /ES is trading at -2 average true ranges (ATR) below the 21 exponential moving average (EMA).
Now the question is… will the market roll over and create a new low?
The other option is a reversion to the daily mean, or the 21 EMA. Think of this big rally as similar to the pullbacks we see in bearish trends. As swing traders, rallies to the weekly 21 EMA are our best opportunities to get short in bearish markets.
In the video above, we’ll review the structure of the major indexes and provide other tickers to observe to get more clarity on the market.
Heading into July, the question on all traders’ minds is whether or not the markets continue to roll over from here.
We expect more downside, but is there potential for a “bear market rally” before the next big puke?
For the markets to have any chance of rallying in a sustainable fashion in July, a few things will have to come together. Add these to your notes, and watch them closely over the next few weeks.
SPY Weekly Chart:
There are a few important observations to make about the weekly chart of the S&P 500 (SPY).
For starters, we must respect that the weekly squeeze is firing to the downside. The rule-of-thumb is that once a squeeze fires on any time frame, we’re typically looking for 8 to 10+ bars of momentum in that direction. Given that this is a weekly squeeze firing short, this signal could have enough gas in the tank for another 4 to 6 weeks of steady downside.
While this squeeze will likely take us lower (eventually), we must also recognize that the weekly chart is technically oversold, trading at the -2 average true range (ATR) extension. More often than not, once the market drops to -2 ATR under the weekly 21 exponential moving average (EMA), there is a growing probability of the market reverting to the mean (rallying to the weekly 21 EMA).
We have a squeeze that could take us much lower, yet the market is a bit oversold. What can we watch from here for confirmation of the next move?
DXY: US Dollar
To keep things simple, the markets tend to trade lower if the dollar trades higher.
The DXY chart looks incredibly bullish with our Big 3 buy signals across multiple timeframes. The structure and signals suggest this wants to trade higher (for now). If it does, we can expect the markets to grind lower. For the market to have a good chance of a real rally, we’ll need to see DXY under $104, which should cancel out the current buy signals.
DXY Daily Chart
HYG: “Junk Bonds”
So long as HYG trades lower, we can expect the bears to remain in control of the market.
At the moment, we have multiple timeframes printing our Big 3 sell signal on HYG. This suggests HYG wants to move into lower prices. For a bear market rally in the SPY and QQQ to unfold, we’ll need to see HYG trading above its daily 21 EMA around $75+.
HYG Daily Chart
These are simple yet important things to keep a very close eye on as July unfolds.
For now, our game plan is to take whatever the market has to offer, long or short, with a focus on our Big 3 signals. In this weekend’s video, we’ll take a look at HYG + DXY and a few other setups through the lens of the Big 3 indicator.
We are excited to announce that all members of the Compounding Growth Mastery are granted early access to purchase the Big 3 Buy and Sell signals. We look forward to using the Big 3 indicators in our next live trading session together.
Enjoy your long weekend, be safe, and it’s back to work next week!
The end of the second quarter is here. We want to focus on the rebalancing that can happen. As discussed earlier in the week, a nice roadmap has unfolded for us.
We started the week with a double top. The S&P 500 (/ES) broke under our major zone, leading us back below the mean at $3,880. This led the /ES toward the structure from our prior low of the year at $3,807.50.
There was consolidation heading into Thursday’s session. The /ES had a gap down after-hours, bringing the /ES back to point of control (POC) at $3,774. The /ES popped back to the low of the year at $3,855.
Thursday, June 30th marks the last day of the quarter and also rebalancing. This could be part of the reason for the /ES pop on Thursday.
The /ES is under the daily 21 exponential moving average (EMA) and a big structure. If the market pops after rebalancing but doesn’t break above this structure, there’s a lot of work left to do.
If the S&P 500 (/ES) struggles to get above $3,800, look for it to head back to POC, the low of the year, and our next key level of $3,720. If the /ES holds $3,800, see if it can hit the top of our zone at $3,855.
We’ll also continue to observe structure for a potential double top.
In the video above, we’ll break down where the market could head after rebalancing, define key zones in the Volatility Index (VIX), break down the structure of the S&P 500 (/ES), and review our focused list setups on NVDA and AAPL.
The market made the perfect reset on Monday for the chance to make a big move next.
The S&P 500 (/ES) hit the low of the year at $3,639 and bottomed. On Monday, we saw a cover pop to the daily 21 exponential moving average (EMA).
On Tuesday morning, SHOP will have their 10-1 stock split, which we’ll review in our focused list in the video above.
On Wednesday, June 29 at 9:00 a.m. Eastern, Federal Reserve Chairman Jerome Powell will speak on the Economic Policy Panel Discussion at the ECB Forum on Central Banking.
Keep in mind we are heading toward the end of June, which also means we’re approaching quarter-end rebalancing. Next week will also be a shortened holiday week, as the market will be closed on Monday, July 4th.
On Monday, /ES ended the day at the daily mean (21 EMA) at $3,900. If /ES holds $3,900 and breaks through the high of the week at $3,948, expect the market to move toward its upper zone and trendline structure (as discussed in the video above).
If /ES breaks $3,900, look for a drop to the key zone at $3,855. After that, there’s potential to hit its prior low of the year at $3,800.
Here is our focused list:
NVDA — Broke below its 21 EMA at $172 on Monday. If NVDA can’t break above $170, it could drop to the support structure below near $164 to $163 down to point of control (POC) at $158. If NVDA reverses along with the rest of the market, see if it can hold its 21 EMA, break $174, and fill the gap from $176 to $180.
SHOP — Practice patience after the stock split Tuesday morning. See if SHOP can move toward $383 and fail for a short opportunity to $355. If SHOP drops to $355 first, then look for it to bounce to $383. We’ll need SHOP to get through its stock split before heading to its next inflection point.
AMZN — Trading near its daily 21 EMA at $113. If AMZN holds its daily mean, look for it to work its way to the trendline structure above to its 50 simple moving average (SMA) at $120. If AMZN does not hold $113, look for a drop to $109 and $107.
I’ll be live in the Simpler Day Trading room from Wednesday to Friday this week to cover the market open. Tune in to trade these setups with me live and look for more potential opportunities in the market.
The bulls made progress for the overall market last week.
The S&P 500 (SPY) gapped up through $385 and closed slightly above its 21 exponential moving average (EMA) on Friday. We’re seeing a switch from the Big 3 sell signals to bullish Big 3 buy signals now.
Keep in mind this coming Thursday, June 30th is the quarterly expiration. This tends to be a larger event as the market often leans heavily to one side, whether that be bullish or bearish.
In the video above, we’ll look at the bigger picture of the overall market and review setups on TSLA and GOOGL.
We saw the S&P 500 (SPY) rally into its daily 21 exponential moving average (EMA) at $390. We also saw heavily-weighted names like AMZN, GOOGL, and TSLA begin to rebuild the structure of their charts. This points toward the potential for more upside.
As far as the TSLA setup goes, this is one of our favorite picks for a rip into higher prices next week. TSLA was one of the first setups where the Big 3 bars went neutral across all time frames. This is an indication that the selling pressure is coming to an end.
At the close on Friday, TSLA traded above the daily 21 EMA with squeezes on the daily, 4-hour, and 15-minute time frames. In addition to these squeezes, TSLA also has green Big 3 bars (our buy signal) on the 30-minute and 15-minute charts.
Keep in mind, individual stocks will move with the market.
In the event SPY fails to trade above $390, it’s unlikely stocks like TSLA will trade higher.
However, if the bulls can run the market higher, we’re looking for leadership in the setups printing our buy signals.
Our target for TSLA is a push into $790 to $800. We’ll be covering a more of the setups on our watch list in the Sunday newsletter video.
Let’s break down how I use my two favorite internals to better understand what moves the market.
We’ll combine how to understand $ADD and $TICK with the overall market to get a better sense, gauge, and feel when you are trading the major indexes. Understanding market internals can be especially helpful in identifying trends and choosing more precise entries and exits.
You must include the dollar sign ($) before the ticker name when entering the tickers into your trading platform.
$ADD: Advanced Decline Line
$ADD shows whether most stocks are trading or advancing above (or below) their prior close. This gives us a sense of what the overall market is doing.
Here’s how one reads $ADD on a chart:
Above zero (positive): Most stocks are up for the day, green day
Below zero (negative): Most stocks are moving lower for the day, red day
$ADD
In the image above, when $ADD was steadily trading sideways above zero (in the bottom left-hand corner), the S&P 500 (/ES) was also chopping to the side with a slightly green day.
When thinking about $ADD, we like to think of it as the steering wheel of a car pointing us in specific directions.
$TICK:
$TICK shows how fast things are getting bought and sold. Consider $TICK as the gas pedal for our car metaphor, representing how quickly price is moving.
There are certain levels and zones that we like to focus on for $TICK:
Zero: When the market is chopping sideways
Upper zones: $600 to $1000
Lower zones: -$600 to -$1000
When $TICK starts to reach the upper threshold from $600 to $1000, this indicates extreme popping or buying. If $TICK stays in this upper range, price will likely explode. Think of this as pushing on the throttle and sending the car forward (or, in this case, pushing price higher).
On the flip side, when $TICK hits the lower zone, extreme selling is happening. We can think of this as pushing on the car brakes.
$TICK
When we put the two internals together, we can ultimately get a confirmation of the move ($ADD) and then see how fast the move will unfold ($TICK).
Case Study: 2/10/2022
In the video below, we’ll walk through both $ADD and $TICK. We’ll go through what I look for and how I use the internals to gauge the overall market using an example from Thursday, February 10, 2022.
We hope you’ve enjoyed this introduction to using $ADD and $TICK to get a better edge in trading. Understanding how to use these internals can be especially useful in defining trends in the market and understanding when exactly to enter and exit your trading positions.
Especially in volatile conditions, we can use these tools to better understand what’s happening in the market and take advantage of big moves.
Due to the Juneteenth holiday, the market is closed on Monday, June 20th so we have a short holiday week ahead.
Energy (XLE) has been one of the strongest trends in the market this year. We’ve been buying every dip until now.
Last week, energy (XLE) and natural gas (UNG) lost their buy signals and bullish structure. We saw energy, natural gas, and names like VLO and OXY print sell signals and show steep percent declines.
When it comes to buying the dip or playing the trend, focus on structure.
In the video above, we’ll review the structure change in energy names. We’ll also review one of our favorite setups printing bullish big 3 bars with a daily squeeze across multiple time frames.
The last 3 to 4 months, we’ve highlighted the energy (XLE) and natural gas (UNG) trends as the best buy-the-dip opportunities in the market. And, for the last 3 to 4 months, that game plan has served us incredibly well.
However, it’s looking like those bullish trends stop here (for now).
We work our “buy-the-dip game plan” when (and only when) our bullish signals are present.
As of Monday, the energy and natural gas charts stopped printing our bullish signals. This was our first heads up that things might begin to break down.
XLE Daily Chart
Our buy signals are based on our bullish trend, structure, and momentum criteria. The signal gets printed (green bars) when at least 6 out of our 7 criteria are met. In order to get the daily buy signal, the weekly chart must also meet our criteria.
So long as we have the buy signal, we look to get long. As soon as the signal is cancelled, it’s time to get cautious.
Since losing our daily buy signals, here’s how much the recent leaders have fallen over the last 3 to 4 days:
XLE: -14%
OXY: -9%
VLO: -18%
MPC: -17%
See how quickly things can change?
This is why as traders, we need to know when to move on to new trends and setups. Far too often, traders don’t know when it’s time to stop buying the dip. This can result to giving back all the profits made when the trend was actually in tact. That’s a big “no-no”, and giving back profits like that should be avoided like the plague.
We thank these trends for their service over the last few months, but for now we’ll be avoiding getting long energy and natural gas until our signals show up again.
In Sunday’s video, we’ll dive deeper and look at these signals across the markets.
It’s been a bloody week, with the major indexes dropping lower on Thursday.
It has been a week full of catalysts with SPX roll, rebalancing, the Federal Open Market Committee (FOMC), and triple witching. Be mindful of these events, especially triple witching (which ends on Friday), as this can lead to more chop.
The S&P 500 (/ES) gapped down from the upper zone at $3,807 to $3,855 on Thursday. It dropped broke inside of a key zone to create a new low at $3,642.
The /ES may continue to chop in this lower range from $3,656 to $3,720. If it breaks below this zone, look for it to hit our target at $3,596.
Keep in mind the market is closed on Monday, June 20th. Pay attention to the price action as big money does take this into consideration.
In the video above, we’ll review the key zones of the major indexes for Friday and setups on our focused list, including ROKU, SHOP, and AAPL.
