Market Analysis and Trades for 7/22

No Paywall for Today

If you are looking to join the Discord (now separate from the newsletter) please see here: JOIN THE DISCORD Please email help@pharmdcapital.com if there are any technical issues. Plans/levels will be posted in the Discord so the Discord option includes Substack content but a new Substack subscription does not include Discord access.

Be sure you have read the Starter Kit, including the free section even if you’re a paid subscriber. Trading Doggy Style Starter Kit

The weekly post for SPY 0.00%↑ and QQQ 0.00%↑ should be reviewed prior to this.

Today saw a completely one-sided opening drive higher that was clearly forced buying. This manifested as a P-shaped profile. Absent initiative buyers to lift the weekly 6369-6373 range (6374 high of day), the P broke down intraday and even made a new low on ES into the close (a spike). NQ didn’t come close To making new low of day but did see some minor weakness into the close. Both majors have relatively poor highs. The combination of the forced buying at open, the poor high, and the afternoon breakdown offer significant clues into the nature of the participants in the tape.

Paid Content Below or in the Discord

Levels - Note not all weekly levels will be used each day but they could all present as part of an “active sequence” within a given day(s). Make sure you have added the levels from the weekly plan to your chart

ES levels to add/keep/change for the daily levels section

6300-6302 keep

NQ Levels to add/keep/change for the daily levels section

23328.5 today’s afternoon pullback low (APBL) and considered minor

23129-23135 keep

COMMENTARY:

ES stuck to the script from last night’s plan quite well. After bidding 6340.5-6342.5 from above overnight and rallying to the 6353.5-6357 spot, ES opened at 6345.5 and immediately drove higher with obvious forced buying. The profile developed as a P-shaped profile into the 6369-6373 spot (6374 high of day) and broke down in the afternoon. Surely some of this forced buying was short covering, but I suspect it to be more than that. In July of 2023, perhaps not coincidentally while I was on vacation, I believe we saw three days in a row with forced buying at the open. The setup was somewhat similar. Coming off the March ‘23 regional bank scare, participants had remained significantly underinvested. They finally capitulated in and bought the top before a nasty multi-month pullback. I don’t necessarily expect a pullback like summer of 2023 (unless we get a fresh catalyst like we did then) but something in the range of 3-7% seems quite reasonable whenever this thing tops out. It feels reasonably close.

While today’s afternoon session looked nasty and rendered the daily candle similarly gross, we would still need to take out a prior day low back below at least 6335.5 (and really Friday’s low) to confirm a second failed breakout. As of now the breakout (even while weak given the afternoon) is still in play. You have my upside targets from the weekly plan should it sustain. We have continued to see this over the last few weeks- we tag a new upside weekly level and get a pullback. This is why we have remained cautious on rips but active on dips. I’ve been saying for some time that the nature of the participants in this tape is quite weak (mostly shorter-term traders) and today was further evidence. We had a poor low on Friday, and we had a poor high today. While a poor low/high generally suggests that a directional move is incomplete, there is more to it than that. They can also signal weakness/exhaustion, for example. The aggressive (NOT strong) buyers were at the open, but there was very little interest from strong initiative buyers in lifting the highs. It would not surprise me to see a couple more days like this (just like 2023) where the opening drive appears strong, a P-shaped profile begins to form, and there is little interest in additional upside initiation. Those profiles may or may not break down intraday if they form at all. This market is getting down to its last buyers - forced buyers.

I mentioned the other day that it was time to “dance near the door.” This didn’t/doesn’t mean the party is over and the music has stopped, but in my opinion, it is time to at least have a contingency plan in place should “up only” come to an end. For some this may mean raising a bit of cash, to others perhaps it means selling some covered calls, and others may choose to buy puts as a hedge. Again, I don’t necessarily think we have an impending 10% correction, but I still prefer to have cash to buy a meaningful dip.

In the meantime, we simply day trade as appropriate. Keep in mind we have significant earnings this week and next, along with a tariff deadline and FOMC next week. That is for sure enough market generated information to change things in either direction.

In terms of price and trades for tomorrow:

The weekly ranges are generally pretty solid for the first moves tomorrow. The 6340.5-6342.5 range captured today’s low, the 6369-6373 range effectively captured today’s low, and 6353.5-6357 remains relevant as last week’s high and a minor lower high from this afternoon.

Trading Lower:

A LBAF of today’s low (especially if today’s spike base 6344.5 is reclaimed) is a long and targets 6353.5-6357 and likely sees at least 6362-6364 (not included in the levels but effectively the bottom of the P from today). As this would once again preserve the recent range break and represent a failure from sellers, I would generally expect resolution to today’s (poor) high.

Holding below 6340.5-6342.5 brings potential for a weekly move to 6292-6294. I would consider a short on a lower high below today’s low. I hate breakdown shorts, especially in a bullish trend, but finding traction below a prior day low would be enough of a change in character for me to do so. Keep in mind we are starting to see weakness now from buyers so it may incentivize sellers (longs exiting) to step in. The first major target would be the Sunday night low of 6329.75 which was last week’s VPOC, mindful of the prior range high 6335.5. I would generally expect resolution to 6323.25-6327, however. On a weekly basis if this weakness is not negated, a trip to 6292-6294 would be expected.

I think we still need to monitor for a LBAF of Friday’s low as the long setup we had planned for today. This would still target 6340.5-6342.5 (today’s low) and a reclaim opens the above referenced levels for a LBAF of today’s low.

Trading Higher:

Given today had a spike down into the close, failure to sustain below the spike base and today’s low is a sign of weakness from sellers (which would surprise nobody). I would generally expect resolution to today’s high to repair the poor character, but given recent weakness now from buyers I’ll assume nothing. The same spots from above apply as targets, 6353.5-6357, 6362-6364, and then a retest of today’s high.

It will be hard for me to plan a short if we trade higher and apparently reject the spike down, but I am willing to be reactive and join if indicated. I simply can’t plan for this ahead of time. If buyers are unable to get to today’s high (perhaps stalling at 6362-6364 then perhaps we see stronger sellers emerge and attempt to stick a lower high for resolution back to today’s low. Again, we haven’t seen strength from sellers in ages so I simply can’t plan for such a short.

I’ll leave it at that for now. I’m back from vacation late Wednesday night so I’ll be on the desk Thursday.