Heading into the new week, the market is showing bearish structure across the board on the major indexes. The issue lies in the fact that there isn’t much movement happening because of large levels of support.
Note that the key level of support for the S&P 500 (SPY) is $420.
There are weekly and daily squeezes on the SPY with lower time frame squeezes on the 4-hour, 2-hour, 1-hour, and 30-minute charts. These nested squeezes could fuel the fire short and take the market through the key level of support at $420.
Remember, a squeeze is a large build up of energy. If the market can release a large amount of energy and break support below, this could trigger a move into a new low.
In the video above, we’ll discuss the scenarios for the market next week and review both short and long setups on names like INTC, IWM, AMZN, and UBER.
The market finished the Friday session with weakness which could open the door for more downside next week…
Despite the bearish structure of the indexes, we’ve seen a handful of nasty short squeeze rallies, which are to be expected in a downtrend. The key, and what matters most, is that up to this point these bear market bounces have not shifted the structure of the indexes, sectors, and leading stocks. In other words, everything still looks bearish for the time being.
SPY Daily Chart
Heading into the weekend, the S&P 500 (SPY) has bearish squeezes on the weekly, 2-day, daily, 4-hour, 2-hour, 1-hour, 30-minute, and 15-minute time frames. When we have bearish structure and momentum on the weekly and daily charts, these clusters of nested squeezes on lower time frames can serve as a great gauge of the next directional move.
We’ll be watching for the “domino effect” that can take place when a lower time frame squeeze fires short and triggers the other squeezes to do the same. This release of energy across multiple time frames can lead to a lasting move in either direction.
While the squeezes can help, we will have to see the SPY break support in order to get a meaningful flush into new lows.
For now, $420 is the key level of support to watch on the SPY next week. If that level can break as the squeezes fire short, the market may begin its next leg toward new lows.
But, if $420 holds as support, there is always the potential for another vicious short squeeze into resistance.
SPY Hourly Chart
We have open short positions in IWM, AMZN, INTC, and long positions in energy names like EOG and DVN. In our Sunday watchlist video, we’ll break down a few of these setups in detail, and the entry/exit levels we’re using for our swings.
After an uneventful core Consumer Price Index (CPI) report on Thursday morning, the market continued its indecisive chop. With new headlines daily, the market and even the world doesn’t necessarily know what to do or think.
These are the periods of time when the market might chop between ranges, so it’s even more important for traders to focus on the technicals and fundamentals that keep us successful in all environments.
We’re still focusing on the same zone on the S&P 500 (/ES) from $4,212 to $4,260. On Thursday, the market was still stuck in this range that is our “line in the sand.”
In the video above, we’ll cover a few scenarios that are possible for the rest of the week and review setups on AMZN, SHOP, and GOOGL.
The S&P 500 (/ES) finally broke down the major zones we have been covering, causing the 4-hour squeeze to fire down.
After a break last week, the market is starting to look vulnerable again. If the ES stays under the $4,260 to $4,212 range, we can see a continued flush this week toward $4,100.
Our main focus will be on capitalizing on the indexes and setups on SHOP and NVDA.
Here is our focused list:
SHOP — If SHOP stays below $585 to $574, it has a chance to see $530 and then $500.
NVDA — $208 to $206 is going to be a major level that can cause a nice bounce, or we can see a break down toward $195.
The S&P 500 (SPY) is still printing a bearish weekly squeeze and was rejected at the daily 21 exponential moving average (EMA) on Friday.
For this weekly squeeze to fire short, the daily chart will need to break below the key level at $430. Until the SPY can break this level, this will be our line in the sand for the next flush to new lows.
In times when the market needs to crack through a key level of support or resistance, there tends to be many squeezes letting out energy.
The main focus for next week will be on the 4-hour squeeze as it is releasing a build-up of bearish momentum under key support. Be prepared as this release of energy could send the rest of the market to new lows.
In the video above, we’ll review the bigger picture trend and pick out spots wisely for potential shorts on names like IWM, AMZN, and SNAP.
While the bigger picture of the indexes continues to look bearish, this week was mostly a chop fest with some violent back and forth action in a wide range.
When will the market break free of this raging chop fest?
Both the S&P 500 (SPY) and Nasdaq (QQQ) rallied to their daily 21 exponential moving average (EMA) this week and were quickly rejected. Typically, this type of rejection at the mean would lead to the indexes rolling over and eventually making a new low.
While that is the move we are looking to see unfold, the SPY and QQQ have to break through support before things can flush lower.
While the QQQ broke the January lows on Friday, the SPY held up at its critical $430 level of support. Heading into next week, should this $430 level fail to hold as support, we would look for the markets to quickly start trading lower, likely in an ugly fashion (or if you’re short in the market, a beautiful fashion).
Often we need lower time frame squeezes to help nudge the market through key levels of resistance or support. In this instance (see chart below), there is a big 4-hour squeeze in the SPY futures. Should it fire short, that could pack the punch needed to finally wave goodbye to support at $430.
SPY Daily Chart
SPY 4-hour Chart
Keep a close eye on the $430 level next week, and expect some nasty downside should it fail to hold and move into a potential new low.
At the moment, we have short positions in AAPL, AMZN, IWM, and SNAP. We took profits on our DWAC long and UBER shorts this week and are ready for the next clean trade.
Despite world and economic turmoil, the structure of the stock market has remained relatively unchanged.
We’re anticipating the Nonfarm Payroll (NFP) report on Friday morning to see if that helps the bulls take back control.
The market has struggled to find direction in the chop. The S&P 500 (/ES) has failed to break through the $4,400 level, which also happens to be the 21 exponential moving average (EMA).
There are multiple squeezes forming across the board. We’ll use the 4-hour squeezes on the /ES and Nasdaq (NQ) as a compass moving forward.
As for our focused list:
GOOGL – Watching the 4-hour squeeze to the upside, but it needs technology’s support. We can continue to buy dips low as the market pops. To fire the squeeze to the upside, GOOGL needs to break $2,726.
NVDA – Printing a 4-hour squeeze. NVDA keeps bouncing between its daily mean and the 200-day simple moving average (SMA). We will look to keep buying low and shorting high until one of the ranges breaks and the squeeze can fire.
We’re in a volatile and headline-driven market. Remember, we want to approach this market with control as we see random power shifts between the bears and the bulls.
The most important way we survive in this type of market is by…
Removing a bias – Be ready, willing, and able to deal with whatever this fast-paced market throws at you.
Position sizing properly – It’s okay to size down and have fun in these environments, rather than adding exposure and pressure in a high-volatility environment.
The line in the sand and biggest inflection point for the S&P 500 (/ES) is $4,212.75. As long as the ES trades above this level, we could see a push toward liquidity at the daily mean and point of control (POC) levels.
In the video above, we lay out a road map for the major indexes, pinpoint key levels on the Volatility Index (VIX), and cover the setups on our focused list.
Here is our focused list:
GOOGL — As long as GOOGL holds above the $2,620 to $2,645 range, it has bullish potential. There is a key zone between $2,700 and $2,715, the daily 21 exponential moving average (EMA) and the daily 200 simple moving average (SMA), respectively. If GOOGL breaks through this key zone, look for a push to the prior POC level at $2,773.
SHOP — Looking for a reversion to the mean at the $780 to $795 range. There is a big POC level at $664, so see if SHOP can hold above the $640 to $664 range. After that, look for a push toward $700 to $730. Be patient on the downside, but if it continues to fail it could drop to the $630 range.
The biggest question in the market right now is where do we look to short?
We’re keeping a close eye on the Volatility Index (VIX) as it may be setting up for a big push and pave the way for our short opportunities.
On Friday, the VIX bounced off the 21 exponential moving average (EMA) and finished above the 8 EMA.
The VIX is printing a proprietary buy signal (green arrow) for the first time in two years. The last time we saw a buy signal on the VIX was Feb. 20, 2020, the day before the market rolled over on the Covid-19 news.
Any explosive move in the VIX could send the market much lower…
We’re continuing our game plan to short any strong bounces with the idea that the bearish weekly squeezes on the S&P 500 (/ES), Nasdaq (/NQ), and Russell (/RTY) will send the market to lower lows into March and April.
We’ll discuss the sectors and names we’re looking to short in the Sunday weekly watchlist video above, and we’ll see you Monday morning for live premarket prep at 8:45 a.m. Eastern.
What Changed After Relentless Short Covering Rallies?
A big gap down on Thursday saw the market trading below the January lows. Things quickly reversed to the upside with the strength continuing into the Friday close.
In a volatile, downtrending market, short covering rallies are explosive, sudden, and often relentless. The hikes continue until the market has satisfied the need to rid itself of holding weekly expiration puts.
The question now is has anything changed?
From our perspective nothing has changed about the bigger picture structure of the indexes.
Therefore our game plan remains the same:
Short the bounces into key moving averages as long as the indexes are under the weekly 21 exponential moving average (EMA).
SPY Weekly Chart
QQQ Weekly Chart
IWM Weekly Chart
Short in Strength, Not Weakness
The key to playing the market to the downside is to time your entries properly, which typically means we are looking to short in strength not weakness…
For the traders who got short on the gap down on Thursday, the rally that unfolded was likely a painful one to sit through. If instead you are placing shorts into strength, the bounce has likely been more tolerable.
For our current Russell ETF (IWM) short in the Compounding Growth Mastery, we initiated the position around $208 to $210. While seeing some open profits disappear this week isn’t fun, we are still profitable on the trade and continue to be in good shape should things continue trending lower into March.
Next week we’ll look to see if the S&P 500 ETF (SPY) and the Nasdaq (QQQ) can grind their way to their 21 EMAs. If so, we’ll be ready to initiate short positions with the idea that the current weekly squeezes will ultimately fire short and send the market into new lows.
That level sits near $440 for the SPY and $350 for the QQQ.
As for the IWM trade, we’d look to add to our current short around $208.
Volatility Index (VIX)
Another chart to focus on next week is the Volatility Index (VIX).
The VIX found support at the 21 EMA on Friday and is printing one of our proprietary buy signals, which we didn’t even see before the Covid-19 flush… Very interesting to say the least!
VIX Daily Chart
Enjoy your weekend, and we’ll see you at 8:45 a.m. Eastern on Monday for our premarket prep session on the Focused Trades YouTube Channel.
