Market Analysis for The Week Ahead

Week of 7/20

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SPY 0.00%↑

The summer grind continues, and the name of the game remains patience and selectivity on dips to extract maximum value. Trading these narrow intraday ranges can be somewhat maddening, but last week’s plan had us well prepared to capitalize on the continued weakness from sellers.

From last week’s commentary:

Sunday opened on yet another gap due to news, testing and holding the 6260-6262.5 edge overnight and rallying 80+ handles before selling off on Tuesday. The Tuesday night/Wednesday morning overnight session saw yet another failure from sellers below 6260-6262.5. This time buyers made it only 40 handles higher before the Wednesday selloff which set up the weekly look below and fail (LBAF) of the prior week’s low. This was without a doubt the best trade of the week, rallying 110+ handles in effectively a straight line

We did start to see some signs of froth in the last couple of days as a number of highly shorted trash companies started to run and NQ saw some panic buying into the highs. The former often happens both during the summer and near the end of rallies as long/short funds have the short side of their books squeezed. ES continues to grind into the same VWAP band that has been resistance since 2024.

Additionally, QQQ finally hit the same extension that caused SPX/SPY and DIA to top ahead of the Q1 selloff.

These are cautionary signs, but price remains fully constructive. The recent sideways consolidation has at least cleared some room from the +2 Bollinger Band. This type of slow grind higher is not uncommon in summer months. We have remained buyers on dips and cautious on rips for some time and it has worked well. When sellers meet my minimum requirements for intermediate trend change then we will consider shorts more seriously. Until then, patience and selectivity with execution at well-defined edges is the name of the game in summer months.

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