📊 What is the Market Narrative?
Today’s trading on the SPY ETF witnessed a gap down to the 5-day simple moving average (SMA), which subsequently acted as support, propelling the price to close as a bullish engulfing candle. This pattern suggests a strong reversal and continuation of the prevailing bullish “meltup,” characterized by price action oscillating between the upper Bollinger Band and the 5-day SMA. Furthermore, the SPY remains within the upper half of an established trendline, indicating sustained buying pressure with bulls aiming for the recent all-time highs.
For bears to gain control, patience is key. The recent Moody’s credit downgrade has yet to significantly impact the current bullish trend. A change in market direction would likely require a discernible bearish structure, such as a head and shoulders pattern where the right shoulder encounters rejection at the 200-day simple moving average (SMA), as visually indicated on the chart with the red pen. Until such a pattern with bearish confirmation emerges, the bullish momentum appears to remain in control.
Heading into the session I don’t see a high enough quality setup in a high enough 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.
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.
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
- Gap and go to repair today’s Poor High
- If a deeper bull structure off the 200 day SMA with right shoulder off the 5-day SMA
- Looking for a bullish structure off the 5 SMA or purple algo
- BEARS
- Looking for a H&S with today’s action serving as liquidity and left shoulder.
- Looking for the cup to close with support at 20 SMA and handle rejection off 200-day SMA
- Looking for bearish structure off 5 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:
Based on the attached economic calendar, Tuesday, May 20, 2025, features a series of speeches from Federal Reserve officials. Throughout the day, the market will hear from Fed Barkin and Fed Bostic in the early morning, followed by Fed Collins, Fed Musalem, Fed Kugler, Fed Daly, and Fed Hammack. Additionally, the API Crude Oil Stock Change report for the week ending May 16th will be released at 1:30 PM. Query successful
The API Crude Oil Stock Change report, released weekly by the American Petroleum Institute, offers an early indication of the supply situation in the US crude oil market. Even though it’s a private report preceding the official government data, its release often generates significant attention as it can foreshadow the trends that the official Energy Information Administration (EIA) report will later confirm. Market participants, especially those trading Crude Oil Futures (/CL), closely monitor the API data for potential insights into short-term supply and demand dynamics, which can lead to price volatility in the /CL futures contracts.
I will be looking at PONY, BILI, AS, ARBE & HD pre-market earnings in the morning to see if we have a Gap and Go or Gap and Fade play. I will play PANW, SNOW &ARQQ 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.
- Jumia Technologies (JMIA): This e-commerce company in Africa is showing a potential bullish setup on the daily chart. The price action is forming a cup and handle pattern, with the handle bouncing off the 10-day exponential moving average (EMA). A breakout above the handle’s high could signal a continuation of the upward trend.
- ABVC BioPharma Inc (ABVE): ABVE, a biopharmaceutical company, is also displaying a cup and low handle pattern on the daily chart. In addition, a hammer candle has formed off the 10-day EMA. This pattern suggests a potential reversal and a possible entry point if the price breaks above the high of the hammer candle.
- Corcept Therapeutics (CORT): This pharmaceutical company is exhibiting a Volume Contraction Pattern (VCP) on the daily chart. The VCP pattern shows decreasing volatility as the price consolidates under a local high, suggesting a build-up of energy for a potential breakout above that resistance level.
- Fortinet Inc (FTNT): This cybersecurity company’s daily chart shows a cup and handle pattern forming below resistance. The price action is also finding support at the 10-day EMA. A breakout above the handle’s high and the resistance level could signal a strong continuation move.
📊Additional things to consider tomorrow:
Reviewing the Market Profile for /ES, we are continuing to see Value Area and POC migration higher. You don’t want to be shorting a market against the direction of Value and POC.
Today, we were able to repair the prior day’s Poor High, which represents a lack of proper end of the auction. In addition, we established a new Poor High that will most likely get repaired in the days to come.
🧠 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.
