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I reposted last week’s plan (without a paywall) which outlined the possibility of the “Trap Door” setup. It played out to completion today on both SPX (during cash session) and QQQ (inclusive of after hours). Whether you read it ahead of time or do so after the fact, I hope you at least found it educational.
PAID CONTENT BELOW AND IN THE DISCORD
If you aren’t in the Discord or otherwise don’t have the indicator script it can be found here: PharmD_KS Indicator.
If you are in the Discord please see the TV-Indicator room for the script.
Add it to your favorites and follow the instructions (copy/paste daily and weekly levels into the respective sections) and use the converter to SPY/SPX/QQQ if you like.
ES Levels/Ranges:
6863-6866*
6842-6845
6823-6826
6798-6801
6776-6780
6757-6760
6741-6744* monitor for LBAF
6716-6719*
6693-6697
6676-6680*
6650-6653*
6636-6640
6618.5-6624
6606-6611*
6598-6600
6579-6583
6558-6562
6542-6545*
6530
6516-6519*
6505.5
6492-6496*
6480
6465-6469*
6451-6454
6431-6435*
6408
6375-6388*
6362.75
Will update if lower is needed
NQ Levels/Ranges:
25420-25432
25369-25382
25313-25325
25253-25269*
25210-25219
25157-25169
25091-25099
25035-25046
24969-24980
24911-24916
24869-24875*
24841
24750-24769*
24651-24669*
24553-24569*
24512
24453
24369-24392*
24236-24248
24169-24183*
24046-24069*
23985-23996
23885-23902
23804-23822
23752-23769*
23700-23724*
23548-23556
23485-23499
23425-23438
23369-23388
23318 monitor for LBAF
23269-23290*
23146-23162
23085-23109
Will update if lower is needed
COMMENTARY:
Checking in on our SPX and QQQ boxes as they developed throughout the week. SPX got the full trap door target during RTH, while QQQ hit its target after hours (582.04 after hours low). The trap door sequence is therefore complete.
Does this mean the sell is definitely over? Certainly not. Would I be looking to initiate a swing short here? Absolutely not. Did I massively decrease short exposure today and add a touch of long exposure after hours? I did.
As we discussed previously this year, with liquidations levels don’t matter as much. This was more of a target on a liquidation break than some massive support anyway. That said, if/when the positioning unwind is done, the snap back rally will be ferocious. Much of this will likely depend on headlines over the weekend and early week.
Note, I do NOT think this move was some random news event. You may have seen my post about credit spreads on Tuesday and of course we had the trap door setup from last week’s plan, and it played out exactly to target. Sure, the headline was the nudge today, but the setup was there, once again off the YTD VWAP +2 standard deviation.
You may recall reference of the prior 4-week balance from August into September from last week’s post which had 4 green candles on the SPX chart. I’m using ES for the following picture as the afterhours move is important.
We now have a fresh 4-week balance as proposed last weekend. The afterhours move held the top of the prior 4-week balance. The white levels are the current 4-week balance (cash hours) and the blue levels are the prior 4-week balance (cash hours)
Finding traction below the after hours low and into the prior 4-week balance would be . . . Problematic for bulls. A full traverse of that range is not guaranteed but would be on the table. The good news for bulls is that the after hours move was fully retraced on QQQ and SPY after Trump suggested a call with Xi was “still on.”
If we do take out 6541 then the 6490-6520 consolidation range from the week of 9/7 which preceded the large move higher becomes critical. You may recall coming into that week it was establishing value above 6496-6502.5 (for that week) which opened the upside breakout. I suggested that area be carried forward. Now we have the potential to revisit it from above.
Below there I believe the risk of seeing 6362.75 (I actually think 6375-6388 holds if seen) becomes real. The 6465-6568 and 6451-6464 levels definitely have potential to trigger a reclaim. Again, further downside primarily depends on further positioning unwind and when that exhausts out. While these unwinds typically last more than one day, today was a rather ferocious liquidation. Today was the highest volume we’ve seen since April on NQ and ES and since April such high-volume days have marked a swing low. Note the last two days with more than 2 million ES contracts traded in a day:
My slight lean is that it is over or nearly over. We all know (and have come to expect) that one Trump Taco Tweet can change the mood of the markets quickly, but I am less certain than many others who will likely posit this scenario this weekend. Remember, my thesis was upside fatigue after numerous weeks of NAAIM 80-100, grinding into the +2 YTD VWAP, setting up the stacked boxes, the weak nature of participants, and as of Tuesday some concerns with the credit markets. Since credit markets flashed the warning for me, I’ll be watching credit markets to find their feet as a potential sign of an impending bottom. The structural location of the afterhours low along with the absolutely fantastic washout today (including an afterhours capitulation which bulls should love to see) make it tempting to call a bottom, but I’ve been around long enough to know how dangerous it is to try to call a bottom in the middle of a liquidation.
If we do trade lower (even if only briefly) it becomes far easier to find a low. A LBAF of this 4-week balance low would be the big picture setup to find a low regardless of where it comes from. Again, the retracement higher (when it comes) will ultimately be ferocious. It is effectively impossible for Monday to overlap today’s value higher for example. Yet overlapping value higher on a daily basis is what will be required at the START of a reversal back up. Thus I always prefer a test lower and fail early in the week, followed by the daily being brought back to balance by taking out a prior day high and overlapping value higher. It is always possible to get an inside day reversal back to the upside, but it is infinitely more difficult to manage risk for longs.
There are no clean “rotations” into next week and amidst a liquidation is no time to discuss clean rotations anyway. Again, either the liquidation/unwind is over or it isn’t. Since I touched on some major ES levels, I’ll touch on some major NQ levels as well but big picture it is this week’s low that ultimately matters most. We either get a LBAF (quickly or later on) or a clean downside break. The QQQ after hours low and just below the bottom of the box from our picture above translates to roughly 24090 on NQ with 24159 (169-183) and todays cash hours low (24384.25) being key to hold/reclaim.
I see 24046-24069 as a big spot to hold if there is to be a relatively quick trap below this week’s after hours low. Any inability from sellers to get through 24046-24069 which reclaims 24369-24392 likely produces a new high for example. The 23752-23769 level is structurally analogous to the ES 6490s spot. Risk of a move toward 22750 increases significantly below 23700-23724 and 23752-23769.
I’ll add just a couple more pictures and leave it at that for the week. I had previously posted the YTD swing low AVWAP with its +1 standard deviation as being key support. At the time I proposed that a meaningful loss of this “support” would likely mark the start of a more meaningful correction. Note where today closed on SPY:
Today also closed just outside the lower daily Bollinger Band (and just above the 50-sma) which has not happened since April. What matters most to me is of course the prior 4-week balance, but all of these factors taken together suggest to me that this is an absolutely massive binary moment with significant implications for the current bull trend. I’m not talking bear market as we still have a tremendous amount of room for a weekly or monthly higher low but there is potential (not my base case) for a 10% correction to materialize if the index doesn’t find its feet quickly here. If you’re a bull and that sounds horrifying to you, imagine the opportunity to buy a back test (or partial back test) of the January all-time high with the YTD low VWAP rising into that spot:
That’s not even the 0.382 retracement from the YTD low by the way (lol).
Good luck this week. The daily plans and Discord will be absolutely critical in finding this low. I realize you may want “the level” to get long, but we saw into April that the liquidation ran further than most (including myself) expected ahead of time.
I get this for $15 a month as an OG and it's honestly disgusting to the point like I feel like I should buy your 9 kids Xmas gifts.
Love you Dad!