📊 What is the Market Narrative?
Today’s session on the SPY began with a significant gap down, breaching the established daily uptrend and testing the crucial 200-day simple moving average (SMA). This move initially suggested a potential shift in momentum. However, bulls quickly intervened, demonstrating strong buying pressure that prevented a previous gap from filling and effectively held the 200-day SMA as support.
Consequently, the market is now trading in a pivotal zone, positioned between the short-term 5-day SMA and the long-term 200-day SMA. With price action currently resting on this short-term support, the market has two primary paths: a rally higher from these levels, or a period of consolidation around these key moving averages. For bears to gain a stronger foothold and invalidate the recent bullish structure, they would need to see a decisive rejection of the 200-day SMA, potentially forming the right shoulder of a larger cup and handle pattern, as indicated by the red drawn line on the chart, simultaneously rejecting the purple trendline. Until then, the immediate battleground remains between these two significant moving averages.
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, see below for the 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 construcive 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 cup and handle structure off the 200-day &20-day SMA with right shoulder off the 5-day SMA
- Looking for an IHS and right shoulder over 5-day SMA.
- BEARS
- Look for continuation in the precision orange algo if we gap lower.
- Looking for a handle off the current cup close with a rejection off 5-Day SMA and precision orange algo.
- Looking for a deeper cup to close and reject off the 200-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 will be abbreviated due to the Memorial Day holiday on Monday, when markets will be closed. Despite the short week, several key data releases are scheduled that warrant attention.
Tuesday will bring a series of Federal Reserve speeches, including commentary from Fed Waller, Fed Bostic, Fed Cook, and Fed Kashkari. While these are not economic data reports, their remarks will be closely scrutinized for any nuances in their economic outlook or hints regarding future monetary policy adjustments.
Moving into Wednesday, the Mortgage Bankers Association (MBA) will release its 30-Year Mortgage Rate, providing an update on borrowing costs in the housing sector. Later, the Energy Information Administration (EIA) will publish its weekly Crude Oil Stocks Change and Gasoline Stocks Change, which are crucial for assessing supply and demand dynamics in energy markets.
Thursday’s calendar includes Durable Goods Orders MoM and ex-Transportation, offering insights into manufacturing and business investment. Finally, Friday concludes the week with the Personal Consumption Expenditures (PCE) Price Index MoM and YoY, alongside the Core PCE Price Index MoM and YoY. This inflation report is the Federal Reserve’s preferred gauge of inflation and will be highly influential. Deviations from expectations could significantly impact market sentiment and expectations for future monetary policy. The PCE data will likely be the most impactful report of the week, with fiscal and Federal Reserve actions potentially hinging on its readings.
I will not be looking at any pre-market earnings in the morning to see if we have a Gap and Go or Gap and Fade play. I will play earning butterfly lottos or double calendar plays for Friday for NVDA, COST & CRM.
🎯 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.
- The Trade Desk (TTD): The Trade Desk is a technology company in the interactive media and services industry, providing a self-service cloud-based platform that allows buyers to create, manage, and optimize data-driven digital advertising campaigns. On its daily chart, TTD is forming a cup and handle pattern, with the handle consolidating into the 10-day EMA. Notably, the chart shows thin structure with gaps both above and below, suggesting that a decisive break from this pattern could lead to quick price movement in either direction as the market efficiently fills these liquidity vacuums.
- Tesla (TSLA): Tesla, Inc., a leader in the consumer discretionary sector known for its electric vehicles, battery storage, and solar products, is currently displaying a compelling technical setup on its daily chart. Price action is forming a textbook cup and high handle pattern, with the handle consolidating precisely on a key support level and the 10-day exponential moving average (EMA). This tight consolidation near dynamic support suggests that buyers are absorbing supply, setting the stage for a potential breakout above the handle’s resistance.
- Compass Minerals International (CMP): Compass Minerals International, Inc. (CMP) operates in the materials sector, producing essential minerals like salt and plant nutrients. On its daily chart, CMP is exhibiting a “high tight flag” pattern. This bullish continuation formation is characterized by a significant prior price surge (the “pole”), followed by a tight, often downward-sloping consolidation (the “flag”) into its 10-day EMA. This pattern indicates strong underlying institutional accumulation and suggests a potential for another explosive move higher.
- Gryphon Digital Mining, Inc. (GRYP): Gryphon Digital Mining, Inc. (GRYP) operates in the cryptocurrency mining industry, making it part of the technology or financial technology (FinTech) sector. The daily chart for GRYP is currently forming a cup and low handle pattern. The handle is developing with price action consolidating around its 10-day EMA, signaling that the stock is coiling up after its initial move. A decisive break above the handle’s resistance would confirm this bullish pattern, potentially leading to further upside in line with the broader cryptocurrency market sentiment.
📊Additional things to consider tomorrow:
Several critical technical observations are evident at this juncture after analyzing the attached weekly chart of the SPY. Firstly, the SPY is currently finding formidable support at the 40-week Simple Moving Average (SMA), depicted by the red moving average. This level is particularly significant as it previously acted as a strong resistance zone during the “Trade War sell-off” earlier in the year. The transformation of this historical resistance into current support underscores a potential shift in market structure and a strengthening of the underlying bullish trend.
Secondly, price action has gravitated back into the multi-week trading range that characterized the market’s consolidation beneath the all-time highs. Within this range, weekly candles have consistently straddled the 10-week SMA (green moving average), as highlighted by the white shaded box. This behavior reflects a period of indecision and accumulation/distribution within this broader equilibrium zone.
Finally, the market has established a clear two-week balance range, visually depicted by the gold shaded box. According to market profile principles, such balance areas serve as consolidation points where liquidity accumulates. A decisive break higher from this two-week balance would provide strong confirmation of the 40-week SMA as robust support, and balance rules suggest that the market is likely to continue its auction in the direction of this breakout, potentially targeting higher resistance levels. Conversely, a definitive break to the downside from this balance, especially if accompanied by a rejection of the 40-week SMA (causing it to revert to a resistance role), would signal a shift in market control to bears, potentially leading to further price depreciation. The resolution of this two-week balance will be a critical determinant of the SPY’s near-term directional bias.
🧠 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.
