Well we made it through Big Tech earnings week. Glad that's over. Caught a couple nice longs out of our "No Trade Zone" from last week's Market Prep (above 4540), but truthfully it wasn't my greatest week of trading. Took some unnecessary losses on NQ_F. I get asked a lot why I'm such an advocate for sitting on the sidelines...earnings week is a great example of why I'm vocal about retail sitting out during volatile weeks. I had a plan for ES_F, and that plan played out well, but then I got greedy and tried a few NQ_F trades that I had no business taking knowing that the volatility would be wild on tech. Note to Self: Stick to your own plans, Horse. Ok, enough about last week, let's talk about the coming week.
As we discussed in last week's Market Prep, I was favoring "Boring Chop" over a hard rejection of the long-term S/R Line. But I'm gonna go out on a limb and say the market moves this week.
Why?
Because the market likes to move in waves (no, not your dumb Elliott Waves), and we've seen some nice volatility contraction for the weekly ranges over the past 4 weeks. This usually sets up well for a decent sized move. Will it be this week? I dunno, but I'm hoping so. So while my default advice is typically to trade sparingly, I will be looking to TRADE this week. Now, it's entirely possible that we just continue to hug that lower green line on the above SPY chart and do nothing, but I have a feeling that's not the line we're gonna hug. I'm NOT a macro guy, but there were some oddities in the market last week that warrant attention and play into my thesis that the overall market is about to get weird. Let's start with the obvious: Option Mania v2 has begun. In fairness, it never really ended, but we did see some incredible options flow into meme names like TSLA that are giving me "SoftBank 2020" vibes:
You remember that time things got weird last year, right? When SoftBank sunk billions into FAANG YOLOs? A repeat could be fun.
(Those were good times.)
I'm gonna call this next section "Top WTF Tweets from Last Week":
Here's another great one from @Mayhem4Markets. That premium is WILD.
(Probably worth watching what the Tesla bulls do to the $2000 Strike now. Just sayin'.)
No, you're not reading a ZeroHedge post, and I'm not going all Sven-like permabear...but it's safe to say things are getting frothy again in financial markets across the globe. While we're on the topic, I should mention the madness in US Treasuries last week:
I'm not a bond expert, but I've been fortunate enough to make friends with some and let's just say last week's flirtation with an inverted yield curve left some big-name bond traders in REALLY bad shape. Long story short...shit is getting weird. Add in the Fed's Interest Rate decision looming this Wednesday (LOL) and we've definitely got a recipe for weirdness. I like weird. But I feel compelled to remind you that "weird" doesn't always mean bearish. Some times weird means face-melting bullish insanity. All I know is that I want to be on the right side of whichever way this thing breaks. So based on our contraction in weekly-range volatility we mentioned earlier, I'm anticipating an expansion and I'm excited as ever to trade ES_F this week. Yes things are weird, but from a technical perspective the S&P500 is bullish as HELL in every way, and there's a few key levels I'll be watching this week:
4590 is what I'd consider an untested Low Volume Node (LVN). To me, this represents a key decision point for the market. I will be looking for the bulls to defend this area and join them on the long-side if they do. I'll be using 4563 as my pivot for the week. I thought about using 4590, but that would be discrediting the incredible bullish run we just had over the past 2 weeks; Bulls still have the ball and I want to give them more wiggle-room before I would be inclined to short this exuberant run.
Above is a 5000 Volume ES_F chart, and this is the channel I plan to trade this week, looking for bounces and rejections. I can't emphasize enough how important I think 4590 will be.
As noted on the 5000 Volume chart, there's a little bit of resting liquidity still hanging out at 4620. I will be watching to see if this is gobbled up tonight, or serves as a temporary "top" as the buyers cool down from last week's meth-induced buying spree. Here's something cool, check this out:
Last week, we talked about the imbalance on the Limit Order Book. As I've discussed ad nauseam, price tends to gravitate towards liquidity. So it's no surprise we drifted upward: If you wanted to buy, the sellers were above. Simple. The question now is "what happens now that balance is restored?" There's really only one notable order left on the book at 4620, so...what now? In my opinion, we're about to see something truly rare: Price discovery. Lol, I could barely say that with a straight face, but I mean it. Now that the madness of big tech earnings is subsiding and we're starting a new month, I think it will be incredibly important to watch where the new big orders will show up on the book. We've got a clean slate now, there's nothing obvious standing out and participants will be trying to make sense of last week's earnings, positioning themselves for the end of the year. Absolutely none of the "big boys" want to be working over the holidays, which supports my thesis of an expansion in range volatility: Bets will be placed. Other Levels I'll be Watching:
4725 (this would be f*cking bananas)
4644
4522.50
4482 Good luck this week, gamblers. If this thing chops I'm gonna be pissed. I'm ready for weird. -Horse