Market Analysis for the Week Ahead Part I
Non-paywalled high level look at ES/SPX
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I posted a “Trading Doggy Style Starter Kit” that I think will benefit both free and certainly paid subscribers. I will continue to build this out over time with additional videos, examples, and explanations.
Trading Doggy Style Starter Kit V2
I will once again pound the table that we are just in a massive consolidation range and taking strong bias anywhere within this range is a mistake. Until/unless we break either side with continuation we are simply consolidating. A clean break from this range in either direction is unlikely to bring a small move. I will include some big picture targets below
That said, much of the below will be focused on the potential for bearish action, including some subtle nuance. I do this for a reason from time to time. Most all of us have self-managed long-term portfolios or at least a 401K. We have been in a persistent uptrend for quite a long time and these accounts have performed well. Our ability to maintain awareness of bearish scenarios has helped us to dodge (and/or be short) every single major index drawdown since this newsletter was launched.
COMMENTARY:
We have chuckled a bit about the fact that we structurally have lower daily highs and lower daily lows since the Jan 24th high, but at the same time sellers had not (until Friday) taken out a prior day’s low during cash hours. We had the 2 huge Sunday night gap downs, buying all week, and then some selling on Fridays. The prior 2 Fridays, however, did not take out a prior day low. This is extremely subtle, and perhaps it doesn’t matter, but it has my attention. The below is a 24-hour chart toggled to RTH only (cash hours) to focus on the cash sessions:
Note on the above the full range is 5813-6163.75 (we’ll discuss where 6163.75 comes from in the full plan but it isn’t relevant here). The midpoint of the range is roughly 5988. Last week’s RTH low is shown in blue. The AVWAPs that can be seen in the picture are the September FOMC rate cut AVWAP (purple) and the August swing low AVWAP (white)
Looking intraday Friday, we note that sellers actually mounted a defense BEFORE the second news driven tape bomb. After the sentiment tape bomb, sellers were defending 6100 (yellow arrows and well below the 6107.25 opening range low) which preserved the possibility of single prints (see the free section of the starter kit if you are unfamiliar). The second tape bomb on tariff news solidified it but sellers were already in the tape. They defended two more times (white arrows) and were willing to sell below a prior day low for the first time in ages during RTH. This is again perhaps some very subtle nuance, but it is worth noting.
We also saw quite a battle around SPX 6030 and this will be key for this week’s first move. This is the bottom of a major SPX range, 6030-6100 (look left on the picture below). You’ll note that the Jan 24th high looked above this range and failed, making a higher high after having made a lower low (this is a broadening formation). The Jan 31st high failed the top of the SPX 3-month range (5773.31-6128.18) and this past Friday’s high failed the back test of 6100 and closed below 6030. This sequence (because of the broadening formation) brings risk of a retest of the 5773.31 low. Please make note that maintaining awareness of a possibility is not the same as a directional call. In my book a price action broadening formation is somewhat different from a traditional chartist’s “megaphone.” In either case price cannot be assumed to travel from one side to the other, but maintaining awareness of the possibility is wise. The midpoint of the 3-month range on SPX is 5950.69 and last week’s low on SPX was 5923.93. Below there and it starts to look like a reasonable possibility.
Regardless, until this massive range breaks with continuation, we are just consolidating. A true break from this massive range should not be small. While there are other extensions to consider, targeting 6300 SPX on the upside or 5600 SPX on the downside should be considered conservative. An upside target of 6483 or a downside target of 5418 is reasonable based on this range alone, though we have other levels and extensions we are monitoring.
Because of the amount of volume that was put in around 6030 SPX on Friday, it is reasonable to consider it to be an early week battleground. In our full plan we will use a slightly different spot but from a high-level perspective 6030 SPX is reasonable for the first move of the week.