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.
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.
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.
Stay Focused!