📊 What is the Market Narrative?
Today’s session on the SPY ETF offered several key technical insights. Firstly, the upper Bollinger Band continued its ascent, highlighting that while the market remains in a short-term extended state, the definition of “overbought” is also trending higher, allowing for continued upward movement. Secondly, a significant bullish development occurred with the 5-day simple moving average (SMA) crossing above the 200-day SMA. This “golden cross” is a widely watched long-term bullish signal, suggesting a potential shift towards a more sustained uptrend.
However, not all indicators pointed to unbridled bullishness. The Relative Strength Index (RSI) is pushing towards the 70 level, which typically signifies overbought conditions and can foreshadow a potential pullback or consolidation. Additionally, the magenta trendline reveals a tapering of the current upward momentum. While the trend remains bullish, the angle of ascent is decreasing, suggesting that the buying pressure might be losing some intensity.
The key takeaway from today’s analysis is the confluence of both bullish and potentially cautionary signals. The long-term bullish implications of the 5/200 SMA crossover are significant, but the short-term overbought readings on the Bollinger Bands and RSI, coupled with the decelerating trendline, suggest the need for vigilance. The market may continue higher, riding the upper Bollinger Band, but the risk of a short-term consolidation or pullback is also increasing. Monitoring tomorrow’s price action and volume will be crucial to determine which forces will ultimately prevail. For continuation, look for pullbacks to the recent gap close or the 554 area near 50/20 SMA.
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
- Perhaps a Gap and Go with the strongest algo
- Looking for a bullish structure off the 5 SMA or pink algo
- BEARS
- Looking for a bearish gap to 5 SMA
- Looking for the cup to close with support at 50 SMA and handle rejection off 5MA/200 SMA
- Small cup with handle off 5SMA/Yellow Algo
- 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 below economic calendar, tomorrow, Friday, May 16, 2025, will bring several US economic reports. At 5:30 AM PDT, we will see the release of preliminary Building Permits for April, along with the month-over-month change. Housing Starts for April and its corresponding month-over-month change will also be released at this time. Additionally, we will receive data on Export Prices MoM and Import Prices MoM for April. Later in the morning, at 7:00 AM PDT, the preliminary Michigan Consumer Sentiment index for May will be published, offering an early look at consumer confidence. These reports will provide insights into the housing sector, international trade prices, and consumer sentiment, all of which contribute to the overall economic outlook.
I will be looking at DOCS, CAVA & TTWO 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.
- CVS Health Corp (CVS) – The daily chart for CVS presents a potentially bullish setup with the formation of a Hammer candlestick pattern. This reversal pattern, characterized by a small body and a long lower wick, suggests that buyers stepped in to negate a selloff. The fact that this Hammer formed at the 200-day simple moving average (SMA), a key long-term support level, further strengthens the bullish case. A break above the high of the hammer candle could signal the start of a new upward move.
- Global X Cybersecurity ETF (BUG) – The daily chart for BUG reveals a potential cup and handle pattern, a bullish continuation formation. The price action is showing a bounce off the 10-day exponential moving average (EMA), a short-term trend indicator, which is a common characteristic of the handle portion of the pattern. A decisive breakout above the handle’s resistance level would confirm the pattern and suggest further upside potential in this cybersecurity-focused ETF.
- Gold/Gold Miners (GDX) – The largest gold mining companies, such as Newmont Corporation (NEM) and Barrick Gold Corporation (GOLD), are typically significant holdings within broader gold indices that GLD indirectly reflects. Additionally, South African gold mining stocks, including AngloGold Ashanti (AU), Harmony Gold (HMY), and Gold Fields (GFI), represent a substantial part of the global gold production landscape and can be influential in the overall gold market dynamics..
- Organigram Holdings Inc. (OGI) – operates within the cannabis industry, focusing on the production and sale of cannabis and cannabis-derived products. As a company in a relatively nascent and evolving sector, OGI’s stock price can be sensitive to regulatory changes, market sentiment towards cannabis, and the company’s growth and profitability metrics. Momentum in OGI can be triggered by positive earnings reports, favorable shifts in legislation, or broader market trends within the cannabis space.
📊Additional things to consider tomorrow:
Reviewing the SPY market profile chart, the last three trading days illustrate a market in flux. The initial two days established a clear balance range, indicating price acceptance within those levels. However, today’s profile shows a shift, developing a double distribution pattern, suggesting a potential disagreement on value and a period of increased volatility.
Crucially, today’s session also created a “poor high” at the upper end of its range and a “poor low” at the lower end. These poor structures signify a lack of significant time spent at those extremes, implying they are likely to be revisited. With the market currently straddling these areas and exhibiting a double distribution, the next directional move is anticipated to be with conviction once the market determines which of today’s distributions to break out from. The resolution of this tension will likely dictate the short-term trajectory of the SPY.
🧠 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.
