As we start to build our watchlist for the week, we need to be aware that there are times in the market to be more active and times to simply ‘sit on your hands’. There are multiple names presenting good-looking setups but they all have one thing in common…
Volatility continues to grind higher.
In the Nasdaq (QQQ) for example, we have a brand new daily squeeze, with names in the technology sector like GOOGL and MSFT also presenting daily squeezes. While these setups are showing structure and trend, we’re waiting patiently to buy the dip.
Because volatility is high, the market does not have a strong conviction to the upside. For the last few months, we’ve seen the market flush and turn back around to all-time highs. Every time the market turned to the upside, volatility flushed.
For that reason, we will ‘sit on our hands’ and wait for volatility to drop until we look to buy the dip and enter high-probability setups. Look for structure and trend for valid setups and wait for the volatility index to die down before confirming and entering your long position.
In a market that has spent the last one to two years breeding a ‘buy the dip’ mentality, it is important to have a set of rules to follow before blindly jumping into the upside.
One of our biggest rules when it comes to buying the dip is that we will not do so without a reversal to the downside in volatility.
Looking at the trend in the S&P 500 (ES) over the last few months (chart below), we have seen a series of flushes to the downside in May, June, July, August, and once again in September. In previous months, each of those flushes were met with a reversal and a rip back towards new all-time highs (ATH).
ES Daily Chart
Visually, buying every dip in this incredibly bullish market makes a lot of sense. What you must understand is the relationship between that reversal to the upside in the indexes with the volatility index (VIX).
Before each and every one of those moves to the upside unfolded, they were triggered with VIX ‘throwing in the towel’.
VIX Daily Chart
In the current market, VIX has continued to grind higher. For this reason we suggest practicing patience here and avoiding getting long until these conditions improve. If there is ever going to be a dip that doesn’t bounce, it will be in the face of increasing volatility.
Until VIX dies down, we won’t be putting cash to work. There are a handful of good-looking setups in names like GOOGL, NVDA, TSLA, and MSFT here, but none of that matters to us in these conditions. Trading is a game of probabilities, and the following probabilities are forcing us to be patient here:
If VIX continues to spike, the indexes will likely continue to trade lower.
If the indexes continue to trade lower, then everything likely gets dragged lower with it.
Your best swing trading will take place when the overall market is providing ‘wind at your back’, and at the moment that is not the case. In the Compounding Growth Mastery, we are able to close profits in AAPL, NOW, GS, FB, IYR, XLC, and TSLA as a result of the wind at our backs. Until the conditions are supportive of the same environment, we will be sitting on our hands!
Next week is setting up to be an interesting one, so make sure to join us for our premarket prep on the Focused Trades YouTube on Monday, Wednesday, and Friday!
Position sizing can sound a bit complicated to many new traders starting out, but it really can be broken down simply. Watch the video above where I discuss my simple guidelines on position sizing using my easy formula that can help determine how much risk you want to have per trade based on your account balance.
Coming into this week, we’re continuing to focus on the upcoming events in the overall market on Friday, Sept. 17: quad-witching, options expiration date, and S&P indexes rebalances. Since the SPX roll event began last week, the market has dropped lower. We’ve seen prices start to chop sideways on Thursday as we approach Friday’s events…
To gauge direction, we’re focusing on two key indicators, the 50-day simple moving average (SMA) and the Ichimoku Cloud. Every pullback this year, the S&P 500 (ES) has been breaking to the 50 SMA, and if it doesn’t stop there, to the daily Ichimoku Cloud top.
When the ES retests the 50 SMA, the market is met with strong support that boosts the market higher rather than dropping to the Ichimoku Cloud.
The ES held the 50 SMA on Thursday, and if it continues to hold that level and boost through the $4,480 range we could see a push back up to all-time highs at $4,550.
Hold the 50 SMA, buy the dip. If we don’t hold the 50 SMA, it’s an even better dip to buy at the Daily Ichimoku Cloud.
Watch the video above to see how the YM and NQ have acted and how they could push or pull the ES and the overall market. We’re keeping a close watch on GOOGL, MRNA, NFLX, and AMD for potential dip buy opportunities.
Happy Thursday, traders! Once again, I have to play $UBER for my fiance this morning, so no live prep today. We’ll be back to business next week, but in the spirit of never leaving ya’ll hanging, here’s a quick video covering a few setups ahead of today’s open.
Let’s dive into another interesting week of market conditions! There are two indicators that have proven to work well this year and simplify direction in this complex market. The market has stopped at two simple places: the 50-day simple moving average (SMA) and if it doesn’t hold there, it hits the Ichimoku Cloud. Watch the video above for a full review of using these indicators to gauge the current market conditions and key levels to watch on our focused list.
Happy hump day, traders ???? I have to drive Ms. Daisy to work this morning, so no live prep today. I’ll go live tomorrow morning (Thursday the 16th) to make up for it, but you know I’ll never leave you hanging. Here’s a quick walkthrough of a few important things to focus on over the next handful of days. See you all tomorrow morning!
Do you find yourself giving back too much of your hard-earned profits every time the market dips? If so, here’s a few of my tips for getting your trading in rhythm with the ebbs & flows of the market.
Before we dive into our Focused List, it’s important to review the events that can impact the overall market this week. If we understand the events coming up and how they may affect market moves, we can have a better plan and make better trading decisions.
Last week we reviewed the start of the SPX (Equity Index) Roll on Thursday, Sept. 9 and since then we’ve seen sharp moves lower, which we’ll break down in the video above. We’ll continue to see this event impact the market until it ends this week on Friday, Sept. 17.
There are a handful of new events happening this week like Quad-Witching on Friday, Sept. 17, the expiration of Equity options and futures and Futures and Index options and futures that can lead to pinning action by big money.
We have the S&P Indexes Rebalance on Friday, meaning big funds will rebalance their portfolio and adjust their positions based on last quarter’s results. Finally, we have the Philadelphia SOX (semiconductor) Index Rebalance, adding to our events list on Friday.
Here is our focused list:
GOOGL — Dropped hard with recent news regarding the Apple App Store but without the noise, we had a nice drop to the daily mean at $2,817. After Friday’s drop, we want to remain patient to see if GOOGL can present a dip buy opportunity. If GOOGL holds the daily mean at $2,817 and the bottom of the 4-hour Ichimoku Cloud, look to take a dip buy for a push up to $2,874 and potentially $2,900.
ROKU — Continued to drop this week. If it continues to hold $323 and the market starts to rally, look for a dip buy opportunity. Both Point Of Control (at $338) and the Daily Mean (at $350) are above ROKU’s current price. Use the $325 zone to facilitate a pop to the $331 and $336 range.
SQ — Broke into a key level at the 200-day simple moving average (SMA) with a beautiful recovery higher on Monday. Keep an eye for price to head back towards the 200 SMA for a great dip buy level. Should SQ hold the $244.35 key level, work SQ up to the 50 SMA or $260 range.
This week we’ll be focusing on the volatility index (VIX) as a key chart to watch. Generally, if the VIX pumps higher, we should see the market move to the downside. We typically see the VIX boost into the 2-3+ average true ranges (ATR) and then die down.
Based on the structure of the market, we could see prices start to grind higher to the upside if volatility subsides. The S&P 500 (ES) and Nasdaq (NQ) maintained structure last week, while the Dow Jones Industrial Average (YM) flushed to around 34,500.
Let VIX tell the story for the market this week. If volatility fades, the market could see a nice recovery higher. Be patient because in a bullish market, a few days of selling pressure can bring the strongest names like AAPL and GOOGL back to the buy zone.
