The Week Ahead in SPY QQQ
Objectively Neutral, but I have a Bias
THIS HAS BEEN EDITED TO ADJUST FOR THE NEW ESH2025 LEVELS
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. It was updated last week with some additional content.
Trading Doggy Style Starter Kit V2
Two weeks ago, I did a video and discussed the +2-2.25 standard deviation bands from YTD VWAP. Since reaching that pocket the index has gone nowhere. Instead, we have seen a tremendous amount of rotation/dispersion as the index remains stuck.
Under the hood there has been quite a lot of selling in the market as IWM 0.00%↑ and DIA 0.00%↑ have been destroyed, while QQQ 0.00%↑ (and really just a few of the MAG7) has significantly overperformed. This selling has led to a NYMO reading of -56 as of Friday.
This is usually suggestive that relief is near, though we have certainly registered far lower readings even this year. Deeply negative NYMO readings almost always correspond to a swing low. What I find interesting is that NAAIM sits at essentially 100 (active investment managers are fully long). Readings near 100 almost always mark a swing high.
We can see the dip in NAAIM from the week of 11/27 to the week of 12/4 and it popped right back up. One need not be much of a detective to see where the money went the last couple of weeks.
With much of the rest of the market oversold, where would the money come from to generate a relief bounce and widening of breadth? I suspect we see one of two things. Either money rotates out of MAG7 and into some of the lagging sectors, or funds would have to add leverage. While NAAIM isn’t the only thing to look at, we can see how it usually ends up when NAAIM breaches 100 (leveraged long).
If you missed the note about the Holiday Pricing on the TDS Courses see here: TDS Course Holiday Pricing
I have both IWM 0.00%↑ and DIA 0.00%↑ coming into some pretty important spots at last week’s low and just a bit lower. If they are going to bounce it will be here or very near.
One would think that yields need to see some relief in order for IWM 0.00%↑ to stage a rally. Both the 10 year and 30-year yields are coming in for a retest of their November high, right as we are coming into FOMC. Many continue to assume that rate cuts are bullish for long bonds, in spite of the fact that the long end was destroyed on the first fed cut of 50 basis points. We, however, were not surprised.
The 2-10 curve steepened dramatically at first, pulled back a bit, and has now resumed higher. The 10 year-3 month has now just disinverted for the first time since inverting this cycle. It inverted in October of 2022. Consider this as somewhat accidental bear porn. I never have nor never will act on something like this, but I do believe the bond market’s reaction to this FOMC is far more important to the next 3-6 months than the Fed’s actual rate decision.
If the bond market reacts poorly the FOMC then I don’t see how RTY can rally and if there is a technical breakout in yields, I think NQ could come under sudden pressure that nobody expects. If the bond market reacts positively to Wednesday, then we likely find that relief pop in some of the oversold areas of the market.
Headed into next week matters are, as of now, quite straightforward for SPY 0.00%↑ as it is effectively trading in a 2-week box. As always, there are a couple of traps I’m watching for and I always love to trade traps.