While the bigger picture of the indexes continues to look bearish, this week was mostly a chop fest with some violent back and forth action in a wide range.
When will the market break free of this raging chop fest?
Both the S&P 500 (SPY) and Nasdaq (QQQ) rallied to their daily 21 exponential moving average (EMA) this week and were quickly rejected. Typically, this type of rejection at the mean would lead to the indexes rolling over and eventually making a new low.
While that is the move we are looking to see unfold, the SPY and QQQ have to break through support before things can flush lower.
While the QQQ broke the January lows on Friday, the SPY held up at its critical $430 level of support. Heading into next week, should this $430 level fail to hold as support, we would look for the markets to quickly start trading lower, likely in an ugly fashion (or if you’re short in the market, a beautiful fashion).
Often we need lower time frame squeezes to help nudge the market through key levels of resistance or support. In this instance (see chart below), there is a big 4-hour squeeze in the SPY futures. Should it fire short, that could pack the punch needed to finally wave goodbye to support at $430.
Keep a close eye on the $430 level next week, and expect some nasty downside should it fail to hold and move into a potential new low.
At the moment, we have short positions in AAPL, AMZN, IWM, and SNAP. We took profits on our DWAC long and UBER shorts this week and are ready for the next clean trade.
Stay Focused!