📊 What is the Market Narrative?
Analyzing the attached weekly chart of the SPY, the market is currently exhibiting a fascinating period of consolidation, presenting a nuanced technical picture.
Firstly, the SPY is actively building a three-week balance range precisely on top of the 40-week Simple Moving Average (SMA), depicted by the red line. This extended period of equilibrium directly on a significant long-term moving average underscores a critical juncture. Patience is paramount here, as the market is clearly awaiting a compelling catalyst to resolve this balance and dictate its next sustained directional move.
Secondly, from a bullish perspective, the current price action is forming what could be interpreted as a weekly cup and handle pattern, with the 40-week SMA acting as the base of the cup. A decisive breakout above the resistance defined by this pattern would provide strong confirmation of the 40-week SMA as robust support, potentially leading to a continuation of the upward trend towards and ultimately breaking the all-time highs.
Finally, this three-week balance range is itself nested within a larger, previous balance range (highlighted by the white shaded box). This “balance within a balance” dynamic implies layers of market agreement and disagreement. The resolution of the smaller, immediate three-week balance will likely determine the short-term trajectory, but the ultimate direction will be governed by the eventual breakout from the broader, pre-existing consolidation zone. Traders will need to monitor how price resolves from both these nested ranges for clearer directional bias.
We don’t tell the market what types of setups it provides us. Rather, we observe, orient and decide what opportunities/setups it provides, then act accordingly using our trading toolbox – Signal Bars, Tactical Longs, ORBs, Tactical Shorts. This will ebb and flow on a day-to-day basis and week-to-week basis. Adapting to this is of upmost importance from an identifying setups and trade management perspective.
Heading into the session, I don’t see any high-quality setup in a high-quality stock that has formed a signal candle, I think warrants being targeted via a BSLO. It’s a market better suited to a tactical approach ORBs and Intraday Swings. Often the leader of the day is the first one in it’s group/theme to power through HOD with constructive price/volume action. Little details, but they matter. Of course, vice versa for the short side.
Here is my daily process:
- Are we in an ideal Swing Trading environment? This means leading stocks ‘calmly’ tightening along key daily MAs. If yes, look for signal bars to form, which I could target via BLSOs or ORBs Setup.
- If no, are we short-term extended to the upside? Wait for leading stocks to pull back towards key daily MAs (especially if overbought 20-day MA breadth readings), then tactical short setups or non-correlated groups/themes like commodities are an option.
- If no, are we short-term extended to the downside? Wait for leading stocks/themes with relative strength to reclaim key daily MAs via Wycoff Phase C Spring (especially if oversold 20/50/200 day MA breadth readings), then tactical long setups to overhead resistance (sell 7/8th LOC, swing 1/8th & possibly 5 Min ORB next day) and/or tactical shorts at key levels and Daily MAs.
🔍 Developing Setups:
- BULLS
- If a deeper structure off the 20-day SMA and a handle right shoulder off the 5-day SMA
- Looking for a small Cup to close and handle off purple algo
- Gap and continuation in white algo
- BEARS
- Look for H&S with the left shoulder liquidity already present. Ideally, rejecting the 5-SMA and further bear structure off the 20-Day SMA.
- Bears can push the market above local highs to suck in buyers before forming head of H&S rejection.
- Looking for a deeper cup to close and reject off the 200-Day or 20-Day SMA.
- SCALP RULES ( Two very, very simple principles)
- Set out the trading framework for the day. So, you take trades only based on the rules you established based on the context for the day. For the morning moves, if the market is kind, it’s looking for continuation structure. Identify the control algos, and the precision algos for the breakouts.
- NO REVERSALS UNLESS: Head and shoulders or for Cups to close and handles form. The principle behind waiting for cups closing to soak up the sellers before confirmation of going long. If unclear. Wait for break/retest.
- An advance move is called a ZOMI (Zone of Mutual Interest). A big part of understanding ZOMI is to not call the absolute bottom/top. You want price to minimum move back into algo and to know where the liquidity is that both bears and bulls want to gravitate toward. 5day MA is often a usual suspect. If we lack continuation structure and get a stop hunt – you are prepared. Use engulfing candles as stop hunts at lows for a head of a HS formation.
- Example below of a great ZOMI trade waiting for the handle off the magenta as resistance R:R yes? It will help you get in position for both the IHS handle and the H&S. Enter puts at green candle off magenta as stop loss target
💥 Earnings / News Movers:
The upcoming week in US economic reporting is set to provide crucial insights into the health of both the manufacturing and services sectors, culminating in highly anticipated labor market data.
Monday, June 2nd, will kick off the week with the release of the ISM Manufacturing PMI for May at 7:00 AM PDT. This index is a key gauge of factory activity, providing insights into production, new orders, and employment within the manufacturing sector. A reading above 50 generally indicates expansion, while below 50 suggests contraction.
Tuesday, June 3rd, features the JOLTS Job Openings report for April at 7:00 AM PDT. This data offers a look into labor demand, specifically the number of job openings available. A high number of openings relative to unemployed individuals can signal a tight labor market, which the Federal Reserve closely monitors for inflation implications.
Mid-week, on Wednesday, June 4th, the ISM Services PMI for May will be released at 7:00 AM PDT. As the services sector dominates the US economy, this report is equally important, providing an updated perspective on activity and employment trends outside of manufacturing.
Finally, Friday, June 6th, will bring the most impactful reports of the week: the Non-Farm Payrolls and Unemployment Rate for May, both at 5:30 AM PDT. These comprehensive labor market figures are critical for gauging economic momentum and are heavily scrutinized by the Federal Reserve for monetary policy decisions. Strong job growth and a low unemployment rate could reinforce the Fed’s stance on inflation, while any significant weakening could prompt a more dovish outlook. The market’s reaction to Friday’s jobs report is anticipated to be substantial.
I will be looking at pre-market earnings in the morning to see if we have a Gap and Go or Gap and Fade play. I will also look at CRWD, RBRK & AVGO earning butterfly lottos or double calendar plays for Friday.
🎯 Key Groups/Themes & Leading Stocks
These are some of the main groups/themes and what I deem are current leading stocks within them I’m watching for setup opportunities to form in coming sessions.
- Carnival Corporation (CCL): Carnival Corporation operates in the consumer discretionary sector, specifically in the cruise lines industry, providing leisure travel services globally. On its daily chart, CCL is currently displaying a cup and high handle pattern. The handle is consolidating on a key support level and resting on the 10-day exponential moving average (EMA), suggesting that buyers are absorbing supply and setting the stage for a potential continuation of its uptrend as demand for leisure travel remains robust.
- BlackLine, Inc. (BL): BlackLine, Inc. operates in the technology sector, providing cloud-based solutions for finance and accounting automation. On its daily chart, BL is also showing a cup and high handle pattern, with the handle consolidating effectively on a support level and the 10-day EMA. Critically, the chart reveals a massive price gap overhead, which often acts as a strong magnet for price action and could be a significant target for the stock to close if the bullish pattern confirms its breakout.
- Exelixis, Inc. (EXEL): Exelixis, Inc. is a biotechnology company within the healthcare sector, focused on discovering, developing, and commercializing new medicines for cancer. The daily chart for EXEL is exhibiting a cup and low handle pattern, with the handle consolidating off the 10-day EMA. This pattern suggests a potential continuation of its prior upward trend as the price coils up after a brief pullback to its short-term moving average.
- SiriusPoint Ltd. (SPNT): SiriusPoint Ltd. operates in the financials sector, serving as a global specialty insurer and reinsurer. On its daily chart, SPNT appears to be forming what resembles a Darvas Box pattern, characterized by a series of rising boxes or ranges where the stock consolidates after making new highs, often on decreasing volume. Currently, the price action is consolidating calmly along its 10-day EMA and near recent local highs. This consolidation suggests a period of accumulation within a defined range, potentially setting the stage for a breakout if demand can push it beyond the current highs
📊Additional things to consider tomorrow:
Reviewing the SPY market profile chart for the past few trading days, a distinct large balance range has been firmly established, encompassing a prolonged period of price acceptance. According to market profile principles, such balance areas serve as consolidation zones, and a decisive break above or below this range is typically expected to lead to a directional move with conviction.
Within this overarching balance, the last three trading days have formed a tighter, “mini balance range,” indicating a more immediate area of price acceptance. However, today’s session introduced some crucial nuances. Despite initial bearish attempts, price action notably failed to find acceptance lower and did not succeed in closing the overhead gap (highlighted by the gold rectangle), suggesting underlying buying support. Conversely, the bulls were unable to prevent the Point of Control (POC) and Value Area from shifting lower relative to the preceding three trading days, indicating that sellers had some success in pushing accepted value down within the mini balance.
This dynamic creates a complex picture where neither bulls nor bears fully dominated today’s auction within the context of the larger balance. The market’s inability to resolve the gap, coupled with the shift in today’s value area, sets the stage for a critical battle as price action navigates the boundaries of these nested balance ranges.
🧠 Get Your Mind Right
- With early candles, focus on identifying the algos. Do not force the trade. More candles and chop are great. It builds a structure for a larger move. Let the range spread itself out to reveal more imbalances.
- If you’re in any trade, protect aggressively early candles, please. Especially after large candles, protect.
- Who cares where the charts are going? So, if you cannot find a structure that will activate the precision algos, just stay out. Let the market present itself to you where it wants to go. No structure, no trade. If you end the day with ZERO trades. So be it. What’s the problem with that?
- Be patient with entries. 3 quality trades a day (Not 3 trades an hour). Be patient with setups.
- If you lose focus, take a breather or call it a day. If you missed anything, so be it. We miss trades daily. You have to get used to it. Second nature to a trader. The market is open every day. For the rest of your life.
- You’re a Winner. Act Like it! Be disciplined. Be victorious in your rules and discipline. No silly mistakes.
- You’re not gonna go wrong if you get a good fill (calls at support & red candles, puts at resistance & green candles) and protect aggressively. Getting a good fill is like starting the 100m race at the 50m line.
- If we don’t see tapering into a respected horizontal channel, we are still in a larger buying/selling channel. Tapering can be messy, take time and will generally lead to a cup. Wait for handle AND the cup completions. Be patient and find the liquidity zones the sellers/buyers can grab.
- Focus on isolating and compartmentalizing each trade setup. Use the 30min chart to find context, then identify the microstructure algos and structure for trade entry in the 1min chart. At the back of your mind, always look out for the liquidity wedge of doom (low volume, inside candles & no imbalances). Don’t force trades in the middle of the range. Do NOT overtrade a range you’ve already extracted profits from. When we lack continuation, that’s when the liquidity wedge will most likely control a big part of the action. Just set alerts and come back in power hour if there’s no new structure.
- The rule of thumb is simple – if it’s not in the strongest algo. You don’t want it. If it’s not in the strongest selling algo, then the selling is “controlled”. by whom? The bulls to build liquidity. So, why short this until more confirmation? Such as a stronger structure or closing inverse cups.
