📊 What is the Market Narrative?
The daily chart of the SPY ETF currently depicts a market in a short-term extended bullish phase. Price action has pushed to the upper Bollinger Band, suggesting a potential overbought condition in the immediate term. However, the SPY is trading above all key moving averages – the 5-day, 20-day, 50-day, and the 200-day simple moving averages (SMAs). This alignment above these dynamic support levels underscores the prevailing upward momentum.
While the proximity to the upper Bollinger Band warrants short-term caution, the bullish thesis remains intact as long as the SPY continues to trade above the rising 5-day SMA. In a strong uptrend, price can often “walk the upper band,” with the upper Bollinger Band and the short-term moving average acting as dynamic support and resistance, respectively. Therefore, as long as the SPY maintains this pattern, the short-term extension does not necessarily signal an imminent reversal.
From a broader perspective, the longer-term bullish outlook is supported by the SPY trading significantly above the 200-day SMA, a widely recognized indicator demarcating the primary trend. As long as the SPY remains above this long-term moving average, the overall bias leans bullish. Therefore, while acknowledging the short-term overbought signal, a bearish stance would only be warranted upon a decisive break below the 200-day SMA, indicating a potential shift in the dominant trend. For now, the market remains in a bullish posture, albeit one requiring vigilance for signs of short-term exhaustion or a break of key support levels.
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 200MA
- BEARS
- Looking for a bearish gap lower underneath 5MA/200 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/200SMA
- 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:
Tomorrow’s economic calendar features a mix of Federal Reserve speeches and energy inventory data. The primary focus will likely be on the Energy Information Administration’s (EIA) Crude Oil Stocks Change and EIA Gasoline Stocks Change, both released at 7:30 AM PDT. These weekly reports provide insights into the supply and demand dynamics of crude oil and gasoline in the US.
While these figures don’t directly dictate fiscal or Federal Reserve policy in the immediate term, significant deviations from expectations can influence market sentiment and inflation expectations, indirectly impacting future policy considerations. For instance, a large draw in crude oil stocks, signaling strong demand, could contribute to higher energy prices and potentially feed into broader inflation, which the Fed is closely monitoring. Similarly, changes in gasoline inventories can affect consumer spending and inflation perceptions.
Throughout the day, speeches from Fed Waller, Fed Jefferson, and Fed Daly will also be on the radar. Their commentary will be scrutinized for any hints regarding the Fed’s evolving economic outlook and potential future monetary policy adjustments, especially in light of recent inflation data.
I will be looking at OKLO, GRAL & BABA in the morning to see if we have a Gap and Go or Gap and Fade play. CAVA, DOCS and/or TTWO have my interest for earning butterfly lottos or double calendar plays for Tuesday.
🎯 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.
- Verona Pharma plc (VRNA) – is a biopharmaceutical company focused on respiratory diseases. As a clinical-stage biotech, its stock price is highly sensitive to clinical trial results, regulatory approvals, and developments in its drug pipeline. Positive data releases or successful trial outcomes can trigger significant upward momentum, while setbacks can lead to sharp declines. VRNA typically exhibits higher volatility due to the inherent risks and potential rewards associated with pharmaceutical development.
- Palomar Holdings, Inc. (PLMR) – is a specialty insurance company focused on catastrophe and specialty risks. Its stock performance is often correlated with events impacting the insurance industry, such as natural disasters, as well as broader market conditions and investor sentiment towards financial stocks. Momentum in PLMR can arise following earnings announcements, changes in insurance rates, or significant catastrophic events that impact the sector.
- 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..
- Cardinal Health, Inc. (CAH) – operates within the healthcare sector, focusing on the distribution of pharmaceuticals and medical products, as well as providing healthcare services. Its stock price can be influenced by factors such as pharmaceutical pricing pressures, healthcare legislation, supply chain dynamics, and overall market sentiment towards the healthcare industry. As a more established company, CAH’s price movements may exhibit less volatility compared to high-growth names, but earnings reports and significant industry developments can still trigger notable momentum.
📊Additional things to consider tomorrow:
The S&P 500 Stocks Above 20-Day Average ($S5TW) is a breadth indicator that shows the percentage of stocks within the S&P 500 index that are currently trading above their 20-day simple moving average (SMA). This indicator is valuable for assessing the underlying strength and breadth of a market rally. A high percentage (typically above 75-80%, as indicated by the upper red zone in your chart) suggests that a large number of stocks are participating in the rally, indicating broad strength. However, it can also signal a short-term overextended condition, increasing the potential for a pullback as many stocks may need to consolidate.
Conversely, a low percentage (typically below 20-25%, as indicated by the lower green zone) implies that the rally is narrow, with only a few stocks driving the gains, or that the market is potentially oversold in the short term, offering a contrarian buying opportunity. Observing the $S5TW in conjunction with price action can help determine the sustainability of a rally. A broad-based rally with a high $S5TW reading might still have further to run but is more susceptible to a correction. A rally with a low $S5TW reading may lack conviction and be less sustainable.
🧠 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.
