After a solid push higher over the last few weeks, the indexes are showing signs of exhaustion as the daily squeezes that fired a few weeks back have lost their momentum. Last week, the market did nothing but consolidate near the 8 exponential moving average (EMA) and it’s lacking any sort of clear direction on low volume.
In the midst of all this chop, the QQQ has formed a new daily squeeze. While this daily squeeze could lead to our next high, the lack of volume, loss of momentum, and the fact the squeeze is new leads us to believe the markets could be generally choppy and soft this coming week.
In an effort to take advantage of any chop ahead, we sold an iron condor on NDX for this coming Friday (5/7) with short strikes at $14,200 on the call side and $13,500 on the outside. This trade should unfold nicely for some weekly income should the market trade sideways to lower.
With signs of exhaustion in the fresh daily squeeze in the QQQ, now is the time to take our foot off the gas pedal, protect the gains that we have made on this recent strong push, and focus on building a watchlist of high-probability setups that could benefit for the next move higher in the markets. In the meantime, we will keep position sizes small and focus on weekly income trades such as the iron condor mentioned above.
As far as setups to watch moving forward, NVDA has a great looking weekly squeeze and we already have a partial position in this one with a May 21 expiration put credit spread. We will be watching this one closely for a chance to add more should we hold up above the 21 EMA.
Along with NVDA, XPE and CAT offer very solid daily squeezes, but the only hold up here is that the stocks will announce earnings over the next few days. We will be watching them closely, and should the daily squeezes still be intact after the earnings we will be looking to take a position in each for a move to new highs.
Stay Focused!