Will the market get a continuation of Friday’s strength?
This move would be ideal for us to short the bounce as we want to enter our short positions at the 21 exponential moving average (EMA).
The S&P 500 (SPX) has a weekly squeeze that hasn’t fired short. This weekly squeeze has the potential for 5 to 8+ weeks of downside momentum.
In the Sunday watchlist video above, we’ll lay out where we’ll look to short the move on SPX and review names with similar squeezes on TSLA, AAPL, AMZN, and GOOGL.
After relentless selling all week, the markets finally rallied on Friday, setting the stage for a short squeeze next week.
The indices and many leading names reached deeply oversold levels on Thursday. While that is the moment in time when things feel as bearish as possible, it’s typically not the best time to get short. Getting short “in the hole” puts a trader in the position to fall victim to the oversold bounce, just like we saw on Friday.
The ideal time to short is on the bounces into falling 21 exponential moving averages (EMA). Should Friday’s strength continue into next week, that’s exactly what we’ll be looking to do. While there are a lot of bearish setups on our watchlist, we’ll likely focus on the S&P 500 (SPX) for our next bearish positions.
SPX Weekly Chart
Looking at the weekly chart of the SPX above, notice that it is setting up in a bearish squeeze under the 21 EMA. Remember the rule of thumb with squeezes: once a squeeze fires, the move tends to last for 5 to 8+ bars.
Given that this is a weekly squeeze, there’s the potential for 5 to 8+ weeks of momentum to the downside. We aren’t just seeing this setup in the SPX. TSLA, AAPL, AMZN, and GOOGL all have similar squeezes.
Because of these weekly structures, we want to short the next bounce toward the daily 21 EMA. Shorting into the strength will offer the best risk-reward on debit spreads or credit spreads. This will allow us to catch the “meat of the move”.
Keep a close eye on things next week, and be ready to consider getting short positions working should the SPX rally into the $4,150 to $4,200 range.
The S&P 500 (/ES) continued to drop lower on Thursday. The /ES opened below the weekly Ichimoku Cloud for the first time since COVID in 2020.
Although the market is extended to the downside, this doesn’t mean price will head toward liquidity. Instead, we want to focus on the next pop setting up for a better short opportunity.
Pay close attention to the $3,900 range. If the /ES breaks through this range to $4,000, we could see it head toward $4,029 and $4,055. If the /ES fails at $3900, it could roll over to $3,840 and $3,800 next.
In the video above, we’ll lay out key zones on the major indices, the volatility index (VIX), and names on our watchlist like SHOP, GOOGL, and AAPL. We’ll use these inflection points as our compass heading into Friday.
Last week was full of earnings reports, economic events, and statements by the Federal Reserve.
This week, the main economic event we’re focusing on is the Consumer Price Index (CPI) report released on Wednesday morning. This report will tell us if consumers are paying more or less for goods and services. This ultimately gives us a gauge of inflation.
We’ll tie the CPI report into our thesis for the week and lay out the different scenarios we could see if this catalyst gives the market a relief pop or drops it lower.
On Monday, the S&P 500 (/ES) dropped to the major key zone from $4,055 to $4,029 we’ve been discussing. We took advantage of this move in the Simpler Day Trading Room with SPX puts, locking in profits to start the week.
In the video above, we’ll lay out major liquidity levels and scenarios we could see if SPX reverses structure heading into the CPI report.
Here is our focused list:
SHOP — If SHOP breaches $334, look for it to break down to the major zone from $305 to $282. If it starts to pop through $355, look for SHOP to work its way through $383 to point of control (POC) at $401.50.
ROKU — See if ROKU can first pop to $92 for short opportunities. From there, look at the $97 to $103 zone to short again. Our targets to the downside are $83, $80, and the earnings low at $75.
After the Federal Reserve statement on Wednesday, the S&P 500 (SPX) short squeezed up to its 21 exponential moving average (EMA). On Thursday, the market flushed and wiped out the entire move. In hindsight, this would have been a spot we’d like to short the SPX and names like AAPL and TSLA.
We’ll wait for the next potential bounce to enter our short positions. Ideally, we want to enter these positions as close to the 21 EMA as possible.
In this video, we’ll review key things to keep in mind heading into next week and names on both our bearish and bullish watchlists that we’ll look to short on a pop or buy on a dip.
The big question heading into next week is whether or not we get a shortable bounce. The weekly and 3-day squeezes in the S&P 500 (SPX) continue to look poised for more downside, as they haven’t even fired short yet.
In terms of shorting the bounce, in hindsight, it would have been great to short the post-Fed pop on Wednesday.
After Federal Reserve Chairman Jerome Powell wrapped up his speech, we saw the SPX, QQQ, and names like TSLA rally into their falling 21 exponential moving averages (EMA). We didn’t take any action into that pop (aside from taking profits on long positions), so we are patiently waiting for the next bounce before initiating our shorts.
SPX Daily Chart
Remember that heading into next week, we have the indices trading below -2 average true ranges (ATR) on the daily charts with a put/call ratio above 1. Often when the market finds itself in this position, there is a potential for a short squeeze around the corner.
As bearish as things look, we suggest being careful playing the short side until we see a brief relief rally. If we do, we’ll be ready to open shorts on the SPX as close to the 21 EMA as possible.
Our final catalyst for the week is the Nonfarm Payroll (NFP) job report on Friday morning before the market opens. This economic event is our chance to see what big money wants to do for the rest of the week, whether sending this market even lower or giving a relief pop.
We are in a bearish market, so we will continue to focus on shorting the pops.
After the FOMC event on Wednesday, the S&P 500 (/ES) had a large cover pop to $4,300. On Thursday, the /ES broke through point of control (POC) and started to head toward the previous low of the year at $4,101.
In the video above, we’ll lay out key levels on /ES where we’ll look to enter our short positions. We’ll discuss the rest of the major indexes, volatility, and our SHOP setup after a disappointing earnings report dropped it lower than the expected move.
This week, our main focus is on the technical levels in play on the major indexes and the catalysts that could affect the market.
The S&P 500 (/ES) fell to the previous low of the year on Monday at $4,101.75. It quickly made up for the drop with a pop back to a key zone.
In the video above, we’ll review the major price action on Monday and lay out the next key zones to focus on.
The first catalyst we’re keeping an eye on is the economic calendar.
On Wednesday morning, we’ll review the ADP Employment report and see if that impacts price action.
The Federal Open Market Committee (FOMC) statement will be released at 2:00 p.m. Eastern time on Wednesday. Federal Reserve Chairman Jerome Powell will speak immediately after. This is our largest event this week that we will tie into our overall thesis.
The next economic event we’re focusing on is the Nonfarm payrolls (NFP) job report released on Friday morning.
Our main focus will remain on the major indexes at the beginning of the week.
There are names on our focused list we are anticipating earnings reports. We’ll look to play these names later this week.
After market close on Tuesday, AMD reports earnings. See if the news offers setups on itself or other names in the semiconductor sector, such as NVDA.
On Thursday morning, SHOP will report earnings. We’ll look to play the news on Thursday and Friday live in the Simpler Day Trading room.
Until then, ignore these stocks, be ready for the earnings reports, and stay up-to-date on the economic data.
Heading into the week ahead, our major focus is on shorting the bounce.
Our sell signals are printing across most of the market. Our bearish watchlist includes names like the S&P 500, Nasdaq (QQQ), semiconductors, financials, industrials, transports, etc.
When there is bearish structure across most of the market, the easiest short position usually tends to be on the SPY or SPX.
In this video, we’ll break down the SPX short setup we’re focusing on, review sectors on our bearish focused list, and discuss the few bullish names setting up.
Technology giants reported earnings this week. They failed to do the market any favors in shifting the current bearish structure.
AMZN saw a 10 percent gap lower at the open (as shown below). This drop set the tone for another day of steady selling pressure through much of the market.
AMZN Daily Chart
After running the scans and updating our watchlist on Friday post-close, it’s safe to say the short side of the market is likely to present the most opportunity.
However, it’s hard to want to heavily short the markets as they are oversold and due for a bounce. Preferably at -2 average true ranges (ATR), we are taking profits on our shorts and not opening new shorts.
So, where do we want to short the setups on our watchlist?
We want to enter our positions as close to the daily 21 exponential moving average (EMA) as possible.
That’s the execution on every short we take. Short at the 21 EMA, take profits on the flush into -2 ATR (or cut the trade loose on a move above our exit), and rinse and repeat.
Almost every sector in the market, along with the indices, is printing our sell signals. These sectors include XLK, XLF, SMH, XLI, IYT, etc.
When this happens, we tend to focus mainly on shorting the SPX itself instead of individual stocks.
It’s a simple game plan, but it’s one we’ll continue putting to work until things change.
For the S&P 500 (SPX), we’ll look for our opportunity to enter a short on any rally into $4,350 with a downside target of $4,100.
In Sunday’s video, we’ll break down how we’ll look to structure the SPX trade and look at other setups on our focused list.
