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We finally saw a follow through day from sellers on SPY 0.00%↑ and QQQ 0.00%↑ today. This time, after an opening drive higher, IWM 0.00%↑ and DIA 0.00%↑ joined to the sell side which led to a much bigger downside day for SPY.
Coming into today we planned to trade against whichever side failed. If sellers attempted to break 5630 and failed, we would trade against them. For buyers, we needed to see them push through 5653-55 and 5660-64 (used 62 for today) and could short against them if the failed to do so and price got trapped back under 49.
The overnight high was 5664, from which price sold off to 5638.25 without properly testing 5630. Following an opening drive lower price hit a short term intraday long opportunity at 5643 (43.25 low) which many of us took. We took profits in the 50-52 range and 58-60 range to ensure a green trade ahead of a 62 test. Price stalled and chopped between 55 and 62 until the IB (first 60 minutes) closed and then absolutely nuked to Hades, traversing nearly the entire IB range in 5 minutes.
The IB low was then back tested from below, caution was warranted for anyone long (though I had said I personally would not long it).
The selling intensified as yesterday’s low was broken for a 2nd time. This is key to carry forward in the future. A second confirmation (and lower low) below a prior day low confirms weakness
Everyone was monitoring for the back test of 5583-85. Once price held just above it (5590 swing low), I suggested that this actually favored bears as it meant that 5585 was less likely to hold. If we had tested it directly with sellers overextended then I believe it would have held. However, by holding 5590 and consolidating with a lor of buying activity for 2 hours it meant that stopping out those 5590 longs would put too much pressure on 5585 to hold.
I liked 5570 to hold. A 5570 hold into a 5585 provides a constructive look on high time frames. Low of day was 5570.25. Tomorrow’s action will be key for this potential setup.
I want to circle back to the overnight action as there was a great learning opportunity to come from it. I even commented this morning about NQ strength relative to RTY and YM and pondered that we may be about to see a rotation back to tech. I always say we have to see how we open cash and today was a great example as it proved my ponderance spectacularly wrong. The two weak indices saw massive drives higher at the open and NQ saw a large drive lower. Relative strength immediately flipped at the open, and interestingly flipped right back by noon. NQ had effectively bottomed for the day while RTY and YM continued to sell off. Perhaps the premarket action on NQ was a clue that it was nearing a short-term swing low, or perhaps this was just near OPEX panicked rotation and dispersion. How we close the week will be incredibly telling
Many of us took a position on QQQ 0.00%↑ and NVDA 0.00%↑ today which we will need to closely monitor tomorrow.
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