We wrapped up a week full of events that created a recipe for choppiness.
Three major events – the Federal Reserve meeting, quad-witching, and quarterly rebalancing – led to volatile back-and-forth action that ended the week with little to no difference in price from where we started.
Keep in mind this can be a harder market to swing trade if we aren’t giving our trades enough time until expiration.
In terms of structure on the S&P 500 (ES), we are seeing a daily squeeze at the 21 exponential moving average (EMA), positive histogram, weekly stacked EMA signals, and a weekly squeeze. Together this gives the ES a bullish structure with a lot of built up energy.
With these catalysts out of the way, we’ll gain a better sense of direction next week for where we can expect the market to head toward the end of the year and into January.
In today’s video, we’ll review the structure of the major indices, the market conditions after this week’s choppiness, and some clean setups that came up in our scan results.
This week we saw the markets go up, down, and ultimately nowhere.
We had the final Federal Reserve meeting of the year along with quad-witching expiration on Friday. Throw into the mix the quarter-end rebalancing and tax-loss selling, and this week made the perfect trio of events for a chopfest.
Looking outside of the chop, the SPY continues to set up in a bullish daily squeeze with a positive histogram and stacked exponential moving averages. This is nested inside of the bullish weekly squeeze. With this trio of catalysts out of our way, it’s time to see if the indexes can finally start firing squeezes to the upside next week.
Should the markets rally into January from here, “everything” will likely rally with it. As always, we want to focus on the cleanest setups possible. From our scan results, following are charts of some of the setups we believe are poised for solid moves higher – if the markets get to ripping higher.
This week has been the champion’s owl of economic events. Our focal point has revolved around understanding these events, how they impact the market, and how to thrive in this market.
The essence of “quad-witching” – expiration of equity and index options along with futures – is to keep the market in place. When the market pops (or drops) quad-witching brings the market back to the mean.
A big level we’re focusing on during quad-witching is point of control (POC) because of its connection to liquidity. POC is the biggest level of liquidity, and we can expect price to move back and forth to these major liquidity zones during quad-witching. This is why we’ve seen the S&P 500 (ES) continue to retest its POC at $4,685.
After quad-witching ends tomorrow, we can turn our focus to the 2-day squeeze starting to form on the ES. We plan to use this squeeze as a compass for whether the Santa Rally will occur and send the market higher or squeeze to the downside.
We have a stacked week of significant events that could prove more difficult to trade than usual. It’s important to understand what these events are and when they are occurring so we understand price action better and stay out of trouble.
Here are the upcoming economic events we’re anticipating this week:
Wednesday, Dec. 15:
Retail sales
1 p.m. Central Federal Open Market Committee (FOMC) meeting with Chairman Powell press conference
Friday, Dec.17:
Quad-witching: Expiration of equity and index options along with futures
Option Expiration (OPEX)
S&P 500 Indexes rebalancing
Nasdaq 100 rebalancing
Traders who aren’t aware of these events will have more skewed expectations of the market, especially with anticipation of the Santa Rally. By being aware of market events we are more ahead of the game and can prepare for opportunities.
Protect your account, stay patient, and size down until normal price action comes back (when we’ll be ready to attack hard).
Here is our focused list:
GOOGL — Started the week with a reversion to the mean at the daily 21 simple moving average (SMA). GOOGL has a weekly squeeze with a gap to fill from $2,904 to $2,877, the bottom being the 30-day SMA. See if GOOGL can hold the daily mean and head toward last week’s numbers in the $2,980 range for a dip buy opportunity. If it moves to the downside, look for it to fill the gap and hit point of control (POC) at $2,863.
NVDA — Closed down 6.7% on Monday. If NVDA breaks the key level at $280, look for it to move to $271 toward the Ichimoku Cloud. We could see a bounce from $280 to $288 up to $300. Keep an eye on the semiconductor index (SMH) to understand if its overall sector could boost NVDA higher or add pressure to the downside.
SHOP — Dropped to the 200-day SMA on Monday. If we revisit the $1,380 area, we could see a decent dip buy opportunity. Look for it to work its way back toward $1,500.
TSLA — Has a gap to fill on the downside from $944 to $910. If TSLA can’t bounce at these levels, look for it to get to POC at $1,017 and revert to the mean from there.
The bulls regained some control last week, as the S&P 500 (ES) and QQQ (NQ) traded above the 21 exponential moving average (EMA), in a bullish daily and weekly squeeze, and with stacked EMA’s and green 10x bars. This push in the indexes could lead the market to brand new all-time highs.
Heading into the week, watch the 4-hour squeezes in the ES and NQ which could set the tempo for a big move. Keep in mind we have monthly expiration and the final Fed meeting of the year, which could lead to back-and-forth action in the short-term.
In today’s video, we’ll review clean setups that we’re looking to add exposure to, as well as scenarios that need to happen before we can take action on certain names.
The bulls fought back with vengeance this week, reclaiming structure to the daily chart. At this point, the weekly and daily squeezes in the indexes look poised to take us to new highs into the end of the year and early 2022.
One potentially powerful setup we’re seeing right now is the “triple squeeze”. This occurs when a stock is in a squeeze at the same time as squeezes occurring in its sector and the overall market.
One example of this is NVDA. It’s currently printing a daily squeeze, right along the SMH (Semiconductor ETF) and the overall market, the SPY and QQQ. Other examples of this currently are MSFT, GOOGL, AMZN, and GS. These triple squeezes will be our major focus into the end of the year.
NQ Daily Chart
SMH Daily Chart
NVDA Daily Chart
Remember the domino effect at play. If a daily squeeze can fire, it can trigger the 3-day squeeze in the process. If the 3-day squeeze fires, it can potentially trigger any squeeze on the weekly time frame. Momentum on momentum. AAPL is the poster child of what can happen when nested squeezes form (a move we took full advantage of).
The major indexes, big semiconductors, and big technology are squeezing. Together this could offer one final big push into the end of the year. We’re still holding swings in AMZN, QQQ, and AMD and are looking for our next spot to add exposure.
The market is setting up unique opportunities this week and next as we anticipate the Equity Index Roll (SPX Roll). This is an important event that occurs every quarter and takes a toll on the market, so it’s important for traders to be aware of this.
The SPX Roll is when big money, firms, and institutional players sell and close out their current positions and “roll out” to longer-term expirations. The roll began today, Dec. 9, ahead of expiration on Friday, Dec. 17.
With this in mind next week, we will see periods of selling off across the market. Be mindful that if price action randomly starts to drop or pop, this may just be a sign of SPX Roll. What is more important is that we focus on our ranges to see if selling is just a result of the rollover or if the market is making directional moves.
In the video above, we’ll define these key ranges, discuss setups on our focused list, and define areas of opportunities to look out for as the market rolls on.
The overall market is in play after ending last Friday on a vulnerable and volatile drop. We’re prepping and watching specific levels to determine where the market is heading.
The S&P 500 (ES) is pinching between two levels, holding the 50-day simple moving average (SMA) and rejecting the 21-day exponential moving average (EMA).
There are three major compasses we will use to navigate this market…
The first bullish step is seeing if the ES can hold the 50 SMA.
Look for the ES to break the 21 EMA and continue to trade above it.
Eyeball the trendline that is forming to visualize next potential moves. There is a good chance the ES will break out of this wedge and head toward the zone from $4,549.60 to $4,592.00.
Here is our focused list:
GOOGL — Bottoming at the Ichimoku Cloud and lingering near the 50 SMA. Focus on $2,788 as this was the level that ripped GOOGL to new highs. This is a good place to buy the dip at the Ichimoku Cloud and play it up past the 21 EMA. Look for GOOGL to hold $2,850 to $2,888.
SHOP — We do not have a bias either way, but there is great potential for a dip buy ideally at the 200-day SMA at $1,357. Look for a move to $1,470, $1,500, and $1,520 this week.
Once we have a better understanding of where the indexes and volatility will go from here, then we can focus on building a watchlist of individual stocks. I’m still holding my long positions on AMZN, NFLX, and TSLA and took profits in our AAPL trade in the Compounding Growth Mastery this week. The key level we’re focusing on right now is the 21 exponential moving average (EMA).
Watch the video above for a full rundown on the structure of the major indices and which scenario would result in a bullish or bearish trend.
As the markets continue to sell off, we are sticking to a simple game plan as we work through this volatility. We have a key level, and we know exactly what to look for at that key level in order to make our next round of trade decisions.
Here is what we’re looking for on both the upside and the downside.
BULLISH SCENARIO:
Key Level: Weekly 21 Exponential Moving Average (EMA)
In order for this bullish trend to continue, we will look for the SPY and QQQ to find support at the weekly 21 EMA. In a bullish uptrend, a dip to the weekly 21 EMA is often a great buying opportunity.
The key here is that we see support at the mean along with a big flush in the Volatility Index (VIX). If that can unfold, the last piece of the puzzle is to see momentum shift to bullish across all lower time frames. If and when this unfolds, we will look for the market to continue the trend to the upside.
BEARISH SCENARIO:
Key Level: A weekly-close under the 21 EMA
In the event the indexes get a weekly close under the 21 EMA, that is the first potential sign that the trend is at risk of shifting to the downside.
After a close under the weekly mean, we would wait for the first oversold bounce to the unsold. If that oversold bounce gets rejected at resistance under the weekly 21 EMA, we would look to short for a flush back to the lows.
During volatile times, anchoring your decisions to key levels such as the weekly mean can make your job of being patient, disciplined, and prepared for the next move that much easier.
