After a volatile and fun market the last few days let’s see what the rest of the week has to offer.
One thing to note is that we have the nonfarm payrolls (NFP) job report on Friday morning, which could upset this market.
After a big drop from the S&P 500 (ES), the market held, chopped, and finally popped through resistance to the daily mean at $4,389. This is an important reminder that every pullback is just that — a break from the market’s bullish run higher.
Let’s review compasses in the market, like volatility (VIX), that we’ll be watching as a gauge for the market’s direction, as well as identify key levels on TSLA, ROKU, and other stocks on our focused list.
This volatile market is at a critical point and we’re continuing to focus on the daily Ichimoku Cloud. For the first time this year, the S&P 500 has closed below this daily Cloud, marking a pivotal point for which direction the market will go next. Watch the video to review the market conditions and some key setups on our watchlist like GOOGL and MRNA.
Time to build our weekly watchlist! In this “short the rip” market, here’s a few potential plays I’ll be keeping an eye on heading into the coming week.
The S&P 500 (ES) closed below the daily Ichimoku Cloud on Monday, shifting market sentiment. We’ll be continuing our theme of “if this, then that” and using the daily Ichimoku Cloud as a compass. If price is above the Cloud, then we are very bullish. However, we’re already slightly bullish for this vulnerable market as the S&P 500 closed at lows on Friday below the daily Ichimoku Cloud. With this downside trend we’ll be focusing on higher lows to make our trades.
Here is our focused list:
GOOGL — On Monday GOOGL hit the bottom of the daily Ichimoku Cloud and continued to trade below the 50-day simple moving average (SMA). Use this as a compass to the downside. GOOGL dumped below the $2,666 level near $2,600 but managed to close above it. If GOOGL holds this $2,666 level watch for a move up to $2,743. If it drops toward $2,600, it could drag technology lower and potentially free fall to $2,500.
MRNA — Much needed pullback to the weekly mean. Broke out of its wedge and closed on Monday below the daily Ichimoku Cloud. If MRNA holds the weekly mean at $330, look for it to break $340, then $350, and up to $375. If it drops below $310 look for $292 as the next big level.
NVDA — Leaning bearish due to its daily squeeze firing to the downside and after it broke the daily Ichimoku Cloud on Monday. Arm acquisition decision on October 10 will be a big catalyst. Good news can make it explode, bad news could lead to downside pressure. Can NVDA work back up to $200 and get rejected or will it drop to the $194 to $188 range? If it can hold the weekly mean at $197 and work back toward $199, look to take NVDA to the upside to point of control (POC) at $207.
TSLA — Reported strong delivery numbers over the weekend for a big gap up toward $800 and then headed down toward the $780 level on Monday. If TSLA maintains the zone between $780 and $760 we’ll stay more bullish. If it drops below POC at $760, TSLA could add to the market dump and drag the SPX lower.
We’re seeing a change from our typical “buy the dip” market where we look to buy the dip at the 21 exponential moving average (EMA) and take it to the upside. With bearish momentum, we could see a transition to a “short the rally” market where we short the market at the 21 EMA for a flush to about -2 to -3 average true range (ATR) extensions and look for a bounce back to the 21 EMA to repeat the process.
In today’s video, we’ll review which spots to look for to take our short positions. It’s important to note which setups we want to avoid and which setups are maintaining their bullish structure in volatile market conditions to take long, like NFLX. Be patient and disciplined in this market and focus on the path of least resistance.
Let’s recap the week after this market started to lose bullish structure. Take a look at the weekly chart on the S&P 500 (ES) because we do find support at the 21 exponential moving average (EMA) while the daily chart shows bearish structure. Until we see two to three closes back above the 21 EMA, approach your trading as a ‘short the rip’ market. In this video, we’ll discuss key spots we’re looking to short and which setups are maintaining their bullish structure amidst a volatile market.
The markets were met with strong selling pressure this week and the daily charts of the major indexes and sectors lost bullish structure. To us, a loss of bullish structure takes place with a series of closes under the daily 21 exponential moving average (EMA), a negative histogram, red 10x bars, and a lack of positively stacked EMAs.
ES Daily Chart
Until the market has two to three solid closes above the 21 EMA, the path of least resistance is most likely to the downside. The goal is to continue playing the ebbs and flows of the market but in the opposite direction of what we have been doing for the last handful of months. This is what we refer to as a “short-the-rally” market environment.
When going short, we want to pick our spots just as wisely as we do when we’re going long. To profitably trade a downside trending market we want to avoid shorting “in the hole.” In other words, we want to avoid shorting at -2 to -3 average true range (ATR) extensions. Instead, we want to short the rejections of the bounce into the 21 EMA and aim to take profits on the flush into -2 to -3 ATR (chart below).
ES Daily Chart
With a decent bounce into the close on Friday, we’ll have to see if the markets can gain support into Monday for a move back to the 21 EMA early next week. If the S&P 500 (ES) gets rejected there this could be where we get our opportunity for a better short.
In Sunday’s video, we’ll dive a bit more into the shift of momentum we’ve seen over the last few weeks, along with a few “gems” that are still setting up with bullish structures in the midst of a volatile market. We were able to take profits on both our HD and NFLX swings this week in the Compounding Growth Mastery. Have a restful weekend and we’re looking forward to tackling whatever the market throws our way next week.
