Daily Focus – May 19, 2025

📊 What is the Market Narrative?

The market absorbed a significant development late Friday with Moody’s downgrade of the US debt credit rating to AA1, aligning its assessment with S&P and Fitch. Historically, previous downgrades by these agencies have triggered notable market reactions. Following S&P’s downgrade in August 2011, the SPY experienced significant volatility, declining by approximately 6.7% on the Monday following the announcement and entering a period of correction. Similarly, after Fitch’s downgrade in August 2023, while the immediate reaction was less severe, broader market unease persisted. On average, the SPY was down roughly 3-5% in the 12 months following these two prior downgrades, highlighting the potential long-term impact on investor confidence.

Looking at the attached daily SPY chart, the initial market reaction on Monday will likely be a gap down. Key support levels to watch include the red trendline, the potential gap close, and the critical 200-day simple moving average (SMA). If the SPY forms a weekly hammer candle above these support levels, maintaining the current bullish trend, then the “bulls on parade” narrative could continue. However, if the SPY closes the previous gap and subsequently rejects the 200-day SMA, it could signal the beginning of a correction phase, mirroring the market’s response to past downgrades by other credit rating agencies. This week’s price action relative to these key levels will be crucial in determining the market’s resilience in the face of this latest credit rating adjustment.

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:

1. 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.
2. 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.
3. 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 gap we will look for structure off the 200 day SMA
  • Looking for a bullish structure off the 5 SMA or pink algo
• BEARS
  • Looking for a deeper bearish gap with a precision algo
  • Looking for the cup to close with support at 200 SMA and handle rejection off yellow algo
  • 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:
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Based on the attached economic calendar, tomorrow, Monday, May 19, 2025, features a series of speeches from Federal Reserve officials. Throughout the day, the market will hear from Fed Bostic in the early morning, followed by Fed Jefferson and Fed Williams shortly after. Later in the morning, Fed Logan is scheduled to speak, and the day concludes with commentary from Fed Kashkari. While these speeches can offer insights into the thinking of individual Fed members, the economic data calendar for tomorrow is relatively light, with no major statistical releases scheduled. In fact, the broader economic calendar for the entire upcoming week appears to be lacking significant, market-moving reports beyond these Fed speeches.

I won’t 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 won’t play any 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.

• VanEck Gold Miners ETF (GDX) – The daily chart for GDX is showing price action within a defined support zone. Adding to the potential for a reversal, a hammer candle has formed, bouncing off the 65-day simple moving average (SMA). This bullish signal at a key support level and dynamic moving average suggests a possible initiation of an upward move in the gold miners ETF.
• UnitedHealth Group (UNH) – UnitedHealth Group operates as a diversified healthcare company, providing health benefits and healthcare services. Part of the healthcare sector, specifically in the managed healthcare industry group, UNH is a large-cap company with significant revenue and sales. Following a recent significant selloff potentially linked to fraud claims, UNH appears to have reached an oversold condition on the daily chart. At this low point, a large volume hammer candle has formed, suggesting strong buying pressure emerging and a potential turning point for the stock.
• Niu Technologies (NIU) – Niu Technologies designs, manufactures, and sells smart electric scooters. Operating within the consumer discretionary sector, specifically in the auto manufacturers industry, NIU’s products cater to urban mobility solutions. As seen on the attached daily chart, NIU exhibited a cup and low handle pattern. On Friday, the stock broke out above the handle’s resistance on high volume, accompanied by a strong breakout candle ahead of earnings this Monday, suggesting a potential “gap and go” play.
• Bitcoin (BTCUSD) – The daily chart for Bitcoin is displaying a massive cup and handle formation, a bullish continuation pattern. The price action is currently situated above the 10-day exponential moving average (EMA), which is acting as short-term support within the handle. A breakout above the handle’s resistance could signal the start of a significant upward move, in line with the bullish implications of this pattern.

📊Additional things to consider tomorrow:
Reviewing the daily chart of the VIX, we can see the market’s expectation of volatility. The 100% retracement from the prior “Trade War spike” indicates a return to levels before that period of heightened uncertainty. However, the recent downgrade of the US debt rating introduces a new element of potential instability, which could lead to an increase in market volatility as investors digest the implications.

Considering this backdrop, your strategy of looking at vertical call debit spreads or long calls with a 30-60 day duration aligns with anticipating a potential increase in the VIX. Long calls would directly benefit from a significant upward move in volatility, while vertical call debit spreads offer a defined risk and reward scenario, profiting from a move higher in the VIX above the upper strike price within the chosen timeframe.

Technically, we would want to monitor key resistance levels on the VIX chart. A sustained break above these levels could signal the beginning of a new uptrend in volatility. The 30-60 day timeframe provides sufficient duration to potentially capture any volatility spikes related to the downgrade or broader market reactions. However, it’s important to remember that these are speculative trades, and the size should be managed carefully to account for the inherent uncertainty in market reactions to such events.

🧠 Get Your Mind Right

1. 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.
2. If you’re in any trade, protect aggressively early candles, please. Especially after large candles, protect.
3. 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?
4. Be patient with entries. 3 quality trades a day (Not 3 trades an hour). Be patient with setups.
5. 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.
6. You’re a Winner. Act Like it! Be disciplined. Be victorious in your rules and discipline. No silly mistakes.
7. 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.
8. 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.
9. 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.
10. 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.