Market Analysis for The Week of 8/3

Where and When is it Safe to Buy the Dip?

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I did a video for this week ahead of writing the plan. It can be seen here Video Post for the Week Ahead

SPY 0.00%↑

In last week’s plan the case was made for a pause or a pullback, while acknowledging that a perfect week of data and earnings could lead to upside acceleration. ES had already reached the 6420s target and met the 6450s target within the week. These were the targets from the prior multi-day/weak consolidation break.

Futures opened on Sunday on a large gap up, opening at exactly 6450 which was already beyond the daily expected move for Monday. There was a brief attempt at a rally before a pullback into the cash open. Note how little time was spent above the Sunday open and the Monday cash open. This was a bit of a clue. Pictures of full session and RTH only:

Note the RTH high was 6451 with very little time spent above even the 6429 Monday cash open:

The SPX daily candles were red every single day of the week (closing below their open). While the index made higher highs, every one of them was firmly sold:

In addition to the 6420s and 6450s extensions being reached, there were numerous additional measures suggesting that price was a bit extended:

Participation (and volume) had been extremely low and was expected to pick up significantly this past week due to all of the market generated information. The direction to which this volume came in would determine the outcome for the week.

The daily was brought to balance on Tuesday as Monday’s low was taken out which opened two-way trading and we certainly saw that Wednesday into Thursday. A hawkish JPOW was received quite poorly, which set up an absolutely amazing long trade on the look below and fail of the 4-day balance low we were monitoring with the daily plans and in Discord. META 0.00%↑ and MSFT 0.00%↑ crushed earnings and caused a massive gap up to yet another new high, but this was again aggressively sold. Note the pickup in volume this week which was even more significant on SPY 0.00%↑

Outside of this year’s low, this was the highest weekly volume on SPY 0.00%↑ since March of 2023.

The index came into a very key structural area on Friday. The question on everyone’s mind is if this pullback is over or nearly over, or if we face a much deeper correction similar to July of 2023 and 2024 which were both roughly 10%. The character of the selling is quite important here. It certainly feels like a bit of a positioning unwind/liquidation of longs. These types of selloffs can rip through key supports we would normally expect to hold, but generally once they are done are quite easy to retrace. This week will likely require a nimble bias. We will have both long and short trade setups (both intraday and on a swing basis) as we monitor for the development of a durable swing low. Neither the NQ nor ES high is particularly “good,” but I have a bit of a wild theory about that I’ll discuss below.

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