As a new week approaches, we’re seeing a lot of bearish structure, trend, and momentum.
Earnings last week from companies like AMZN, FB, and GOOGL affected the major indexes and overall market. These big technology names failed to keep the market out of bearish territory. Until the structure in the indexes change and move bullish, like trading back above the daily and weekly moving averages, our thought is that the path of least resistance is to the downside.
Any bounces to come will simply be short opportunities.
Areas that we would not look to short are spots like energy, XLE, and XLP. Structurally these names are bullish according to our checklist criteria like positively stacked EMAs and green 10x bars.
Stick to the checklist. Look for bullish exposure in a potentially bearish market.
In today’s video, we’ll lay out names that are showing bullish strength and structure to position ourselves properly in this wild market.
It was a week of big earnings announcements in the markets with technology giants like GOOGL, FB, and AMZN reporting quarterly results. Safe to say, it was not dull.
We saw FB sink by more than 25% the morning after the Q4 announcement, while both GOOGL and AMZN exploded to the upside. With such strength in a heavily-weighted name like AMZN, one would think the indexes would react positively, but that wasn’t quite the case.
Outside of a select few spots in the market, most names are looking increasingly bearish as structure continues to break across major time frames. As kids, some of you may have played a game called “follow the leader.” In the current market that mindset is going to be important, as we are no longer in an environment where everything has the wind of the market at its back.
Examples of leadership in this market are energy and oil stocks, such as XLE, XOP, LNG, EOG, DVN, and many others. Unlike technology, semiconductors, and most other sectors, energy has a bullish trend, structure, and momentum (the BIG 3). So long as that’s the case, this will be one of the few spots we are looking to add bullish trades, while patiently waiting for better short entries on the indexes.
This week we were able to nail a nice move during the Compounding Growth Mastery session in DVN. This energy stock fired a handful of lower time frame squeezes for a solid move into our target of $56. Though a short-lived trade, it was good for a quick 45%+ return on risk. A nice trade, but we’re looking for more leaders like this one.
Heading into next week, so long as the bullish structure remains intact, we’ll be looking to buy dips on DVN, EOG, and a few other energy/oil names. Another interesting spot right now is XLP (consumer staples) which is home to solid setups in PG, KO, and PEP.
DVN Daily Chart
PG Daily Chart
XLP Daily Chart
XLE Daily Chart
When you compare the current market to the environment we saw for most of 2020 into 2021, following the leaders – wherever they may be – is crucial to your success. No longer is the path of least resistance to the upside for the entire market, so our focus must shift to the select spots still showing bullish structure and momentum.
Follow the money, follow the leaders, and there are profits to take home consistently even in this wild market.
This has been a wild week of earnings. Earlier in the week, we saw GOOGL report and explode and FB miss and implode.
On Thursday we had our last big technology name report for the week. Amazon reported its Q4 2021 earnings with a small loss of revenue, but announced it will boost the price of its prime membership.
The question now is…
Will AMZN save the market? Or will it fail to hold this move and roll over?
The S&P 500 (ES) has a new point of control (POC) for February at $4,505. On Thursday the ES chopped at this level before flushing into the close.
The Nonfarm Payroll report is Friday morning, which will be the focus for whether the news rallies the bulls or feeds the bears.
In this video, we’ll lay out the scenarios we can expect from the market and look at setups on NVDA, SHOP, and GOOOL.
We’re starting the first week of February off with earnings and job reports that could influence the overall market.
We’re anticipating earnings announcements for AMD and GOOGL on Tuesday, META and QCOM on Wednesday, and AMZN on Thursday. These large technology and semiconductor companies play a big role in the market, so make sure to have these events on your radar. Personally, we love to trade these names after the earnings reports, so we’ll follow up with new key levels to watch later on this week.
We’ll get a glimpse into the economic status from January from the ADP Nonfarm Employment Change report on Wednesday morning and the Nonfarm Payrolls report on Friday morning.
In today’s video, we’ll review our thesis on the market heading into the new month, specifically analyzing the daily and weekly charts on the S&P 500 (ES).
Here is our focused list:
NVDA — Could explode or dump after AMD earnings. NVDA has a big key level at $248 and if it breaks this level, we could see a reversion to the mean at $254. If NVDA stays above $240, we can expect to be bullish in the short-term. If NVDA breaks $240, we’re back at the $230 range.
SHOP — Bouncing back to major key levels. If SHOP breaks $1,050, we could see an upside rally and a reversion to the mean at $1,050. SHOP could fail to break this level and fall to $900 to a downside target at point of control (POC) at $853. Upside target for the week could be near $1,030.
With a loss of market structure and momentum, the path of least resistance is showing to the downside.
We’re looking to price out a call credit spread on the QQQ. If we can lock in that trade, we’ll look for an exit above $375 which is the weekly 21 exponential moving average (EMA). To the downside, we’ll look for a profit target near the recent low at $330.
Ideally we’re looking for a big bounce in the indexes early next week. Because of trend, structure, and momentum, our plan is to short the bounce.
As the indexes begin to look increasingly bearish as the weeks go by, it’s important to keep in mind that many of the same principles that keep you profitable in a bullish market will serve you well in a downtrend.
A great tip for newer traders is to look at the inverse charts of the current indexes (to look at inverse charts, just enter a minus sign before any ticker). Looking at the inverse charts will likely be more “familiar” as the inverse of the indexes looks bullish.
QQQ Inverse Daily Chart
Looking at the inverse chart of the QQQ above, while it looks bullish, it is far too extended to get aggressively long at these levels. In an uptrend, we would wait for the next dip to the 21 exponential moving average (EMA) before getting short.
Taking that same principle, when we look at the actual QQQ, though it’s bearish, it is far too extended to the downside to place a good short here. With that being said, we are looking for bounces early next week, ideally into the 21 EMA as our next opportunity to enter a low-risk, high-reward short.
QQQ Daily Chart
Since volatility is what brings the market down, we’ll need to see the Volatility Index (VIX) flush back to its own 21 EMA next week to give the indexes a chance at rallying. If the VIX – some call it the “fear” index – can in fact fade to the downside, we’ll be ready to enter some shorts on the indexes. We’ll be watching for a break under the recent lows into February and March.
So long as the structure is bearish, we’ll be looking to play the “ebbs and flows” of the market in the path of least resistance.
Now that we made it through the Federal Reserve meeting, let’s lay out a few scenarios moving forward to continue trading strong.
The S&P 500 (ES) dropped hard following the Federal Open Market Committee (FOMC) statement, popped Thursday morning, and now the market is stuck in chop.
The ES is in a consolidation phase stuck between two big inflection points. First the ES broke through the $4,492 zone with the 200-day simple moving average (SMA). Now it is trading above the lower inflection point at $4,260 and the low of the week at $4,126.75.
The overall market is trending lower, and volatility remains high. As long as the Volatility Index (VIX) trades above 20, downside volatility is favored.
The catalyst that could influence what we see next is the ongoing earnings season. We are picking up into the heart of this earnings season, anticipating the AAPL report on Thursday night and AMZN and GOOGL coming up next week.
The earnings releases could change the sentiment of the market or add fuel to the fire for selling.
Watch the video above for potential scenarios we could see in the overall market and our focus list of actionable setups moving forward.
We’re anticipating another volatile and eventful week as we have multiple catalysts that can impact the overall market.
We’re getting into the gist of earnings season after banks earnings last week. This week we are anticipating releases from big technology names like MSFT on Tuesday, BA and TSLA on Wednesday, and AAPL on Thursday. NFLX got destroyed after its earnings last week, so we’re interested to see if we can find new plays on the technology stocks going forward.
On Wednesday at 2 p.m. Eastern we’ll see the Federal Open Market Committee (FOMC) statement followed by Federal Reserve Chairman Jerome Powell speaking at 2:30 p.m. Eastern. The market will most likely head lower into the FOMC meeting, which is why it’s so important to understand how these economic events impact the market.
We’ve been in a short-the-pop type of environment since Powell’s last statement on Jan. 5 with incredible opportunities to short the market. The S&P 500 (ES) closed below the 200-day simple moving average (SMA) on Friday, taking out huge levels.
That being said, we’re mainly focusing on playing the overall market on SPY, QQQ, SPX, etc.
Here is our focused list:
NVDA — At large technical levels after breaching below the 200-day SMA. NVDA showed relative strength after closing above the 200-day SMA on Monday. This could be a nice pop for a dip buy if NVDA retests the 200-day SMA. Potential targets to the upside could range from $250 to $255.
Last week we saw nasty price action with the S&P 500 (ES) down 2% and the Nasdaq (NQ) down 3%, driving the overall market lower into the weekend.
If we look at the put call ratio (PCALL), it is showing a reading that most traders are positioned short right now. The market is extended, so there could be short-term bounces coming.
The major thing to keep in mind is the monthly squeeze in the indexes that fired to the upside is now over, having lost momentum and structure. For the first time since this squeeze, the ES closed below the 8 exponential moving average (EMA), which typically will push price down to the monthly 21 EMA.
The key in this environment is to play the ebbs and flows of the market where the path of least resistance is – to the downside.
Sign Up for my FREE Webinar this Wednesday, Jan 26 at 7 p.m. Central as we discuss how to stay profitable in this downtrend.
After a two-year run of support, the market is signaling a shift.
From top to bottom, trend, structure, and momentum in the markets continue to turn bearish. Here’s a look at what we’re seeing as the environment shifts…
MONTHLY CHARTS
The SPY and QQQ fired monthly squeezes to the upside back in early 2020. Those squeezes were responsible for the trend and momentum that we experienced up until recently.
As these squeezes show a loss of momentum, recent closes under the monthly 8 exponential moving average (EMA) open the door for a potential flush down to the monthly 21 EMA. Meaning the market could have plenty more downside to come.
QQQ Monthly Chart
WEEKLY CHARTS
Ever since April 2020, the 21 EMA on the weekly chart has been a major level of support for this trend in both the SPY and QQQ. With Friday’s close, both indexes find themselves heading into the weekend trading under what has been critical support throughout the entirety of this trend.
QQQ Weekly Chart
With a loss of momentum and now structure on these bigger time frames, we are led to believe the path of least resistance will be to the downside. Now, much like when trading the upside, we want to pick our spots wisely with good entries. With that being said, next week we will be looking to short any bounces in the market.
One of our major focuses for new shorts is the IWM, which we closed a profitable short on Friday morning in the Compounding Growth Mastery. We initiated the short on Jan. 10 and closed the position on our move into our $200 target for 85%+ return on risk.
This short was so nice, we’re looking to do it twice.
IWM Daily Chart
In the weekend video on Sunday, we’ll be covering these shifts in the market in detail, along with looking at the results of our short setup scans.
The key to remaining profitable as a trader is to stay on the right side of the market. Until things change, our opinion is that the path of least resistance will be lower!
If you haven’t already seen my recent webinar on my 2022 Game Plan discussing win rates, limiting losses, and finding clean setups, watch the free replay here.
