📊 What is the Market Narrative?
Analyzing the daily chart of the SPY, we are still hovering below the confluence of resistance factors, including the 200-day simple moving average, the upper Bollinger Band on the daily chart, and the 40-week simple moving average. A rejection at this resistance zone would suggest a potential pullback. Subsequent support levels to monitor include the 554.50 area, representing a potential higher low, and the gap fill level around 530. The Federal Open Market Committee (FOMC) meeting tomorrow serves as a significant macroeconomic catalyst that could influence market direction and volatility, potentially validating or negating the current technical outlook.
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
- We are still in the Wedge of Death so a Cup and Handle structure off 563.33.
- Looking for a bullish structure off the 5MA/ 50 SMA
- BEARS
- Looking for a bearish gap lower underneath 5MA/50 SMA
- Looking for the cup to close with handle rejection off 5MA/50 SMA
- Head and Shoulder with handle off 5SMA/50SMA
- 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:
Here’s an overview of the US economic reports scheduled for release tomorrow, Wednesday, May 7, 2025, with a focus on the Federal Reserve’s announcements:
Tomorrow’s economic calendar culminates with the highly anticipated Federal Reserve Interest Rate Decision at 11:00 AM PDT, followed by the Fed Press Conference at 11:30 AM PDT. The market widely expects the Fed to maintain the current interest rate at 4.5%. However, the primary focus will be on the nuances within the Fed’s statement and Chair Powell’s subsequent remarks. Investors will be scrutinizing the language used to assess the Fed’s evolving outlook on inflation, employment, and overall economic activity, seeking signals regarding the potential path of future monetary policy adjustments. Any deviations from the expected rhetoric or subtle shifts in tone can trigger significant market volatility across asset classes.
It is crucial to acknowledge the heightened risk associated with holding open Overnight to Expiration (ODTE) options positions leading into such a major announcement. The uncertainty surrounding the Fed’s communication can lead to rapid and unpredictable price swings, significantly impacting the value of short-dated options. The combination of potential volatility expansion and directional moves makes ODTE positions particularly vulnerable, emphasizing the importance of either closing such positions beforehand or employing very small, speculative sizing.
Earlier in the day, we will also receive the MBA 30-Year Mortgage Rate at 4:00 AM PDT, followed by the EIA Crude Oil Stocks Change and EIA Gasoline Stocks Change at 7:30 AM PDT. While these energy inventory reports can influence oil and gas prices, they will likely take a backseat to the Fed’s pronouncements, which will be the dominant market driver tomorrow.
I will be looking at UBER in the morning to see if we have a Gap and Go or Gap and Fade play. DASH and BROS have my interest for earning butterfly lottos or double calendar plays.
🎯 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.
- Uranium and Nuclear (NLR) – We have a large follow thru candle today through the local highs. Looking for continuation in the theme leaders e.g CEG, GEV, OKLO.
- Cybersecurity (BUG) – This is a Strong Theme to focus on. Nice Cup and Handle pattern with 52 RS highs while in the base. Individual stocks to have your watchlist are CYBR, FTNT & CRWD.
- Global Clean Energy (ICLN) – This a massive accumulation base that is consolidating at the top. Notice the Wychoff C-Spring off the recent lows. Something to have on the Watchlist.
- Crypto Stocks. Look at Bitcoin in the Daily Chart below. Potentially preparing to break out above the $100,000 level. Keep HOOD, COIN & MSTR on your Watchlist.
📊Additional things to consider tomorrow:
The CBOE Volatility Index (VIX) has recently retreated to the 25 level, prompting a crucial question: will it continue its descent into the lower end of its established weekly trading range, or will it find support and establish a new, higher range? This juncture holds significant implications for broader market sentiment and trading strategies.
Over the past five years, the VIX has exhibited distinct trading ranges, often influenced by macroeconomic and geopolitical events. Notably, during the initial phase of the Trump administration, marked by the US-China tariff war, the VIX experienced periods of heightened volatility, fluctuating within a wider range compared to more tranquil periods. This historical context underscores the VIX’s sensitivity to uncertainty and its propensity to establish new ranges in response to evolving market conditions.
Regarding seasonality, the VIX tends to exhibit a degree of cyclicality. Historically, the period from late spring through early summer has often been associated with lower VIX readings, reflecting a seasonal lull in market volatility. However, this pattern is not absolute and can be overridden by unforeseen events. Currently, the VIX’s approach to the 25 level coincides with this historically calmer period, potentially supporting a move into the lower end of its range. However, the upcoming Fed announcements and any emerging geopolitical developments could easily disrupt this seasonal tendency and lead to a VIX bounce, establishing a new, higher trading range.
Traders should monitor price action closely around this pivotal level, paying attention to volume confirmation and any shifts in market sentiment. A decisive break below 25, accompanied by sustained low volatility, would favor a move into the lower range. Conversely, a bounce off this level, particularly in conjunction with increased volume, would suggest the establishment of a new, higher volatility regime.
🧠 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.
