📊 What is the Market Narrative?
Today was a gap and fade to the 50 SMA. We are trading back in the middle of all major MAs. Don’t make any predictions on where you think the market is going. We have clear signposts with Resistance levels (200 SMA and Upper BB) and Support Levels with 5 SMA and 550-551 zone. The VIX is still at 25 with reactions from tech earnings (AAPL & AMZN) and economic reports.
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.
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
- An overnight gap or opening drive to 200MA and in strongest teal algo
- Looking for a bullish structure off the 5MA (1)
- BEARS
- Looking for a bearish H&S rejection off the 200MA (3)
- Looking for cup to close with handle rejection off 5MA (2)
- 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:
The Friday non-farm payroll report and the unemployment rate are arguably the most closely watched economic data releases, capable of generating substantial intraday and even multi-day market volatility. As comprehensive indicators of the labor market’s health, they offer critical clues about the overall strength and direction of the economy. A significant weakening in job creation coupled with a rising unemployment rate can fuel recession predictions, as a deteriorating labor market often precedes broader economic contractions.
The Federal Reserve heavily relies on these labor market indicators when formulating monetary policy. A weakening labor market could prompt the Fed to consider a more accommodative stance, potentially pausing rate hikes or even implementing rate cuts to stimulate economic activity and support employment. Therefore, deviations from consensus expectations in the non-farm payroll and unemployment figures can lead to immediate and pronounced market reactions as investors recalibrate their expectations for future Fed policy actions and the likelihood of a recession..
I will be looking at XOM and CVX for potential bearish butterfly earnings spec 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.
- Gold and Gold Miners
- China Large Caps
- Cybersecurity
- Crypto Stocks
📊Additional things to consider tomorrow:
The VIX has come down substantially. Another instance of VIX reaching a daily overbought level and then settling down. The VIX is around 25, so it’s still above 20, even with the market gapping higher.
🧠 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. 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.
- You need to understand this very simple principle. 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.
