Theme of last Weekly Analyses was RISK IS TO THE DOWNSIDE.
And we got the worst week since GFC of 2008.
Next week, we have following data and German Earnings reports:
Chinese PMI on Monday can be important, since we are in the bearish environment, in which every news can easily be bearish, even if it is inline with expectations. It could put more salt to the open wound.
Moving to charts.
Chart#1 - ES_F Daily
This is an updated chart from last week. Also an illustration of how fast and furious this move was. Compare it with the previous one. On Friday, market tested the starting point from October 2019 rally. When you get a 100% retracement, usually there will be a bounce first, and we had one. Weak one, so far. What is next, that is the question.
Chart #2 - SPX Cash Index Daily
If we look the move from Dec 2018 low to the ATH, market also bounced from halfback of the entire move. Note the confluence of 61.8 fib with the support area and 2715 level, which represent -20% from ATH. Then - by yourself - COMPARE this chart with NDX. You will find out that NDX did not retraced the complete move from October low, showing relative strength.
When we make fibs, and now have a massive down move, we need to make a fib on that move also, to see are there some confluences with other references (resistances), IF market makes an up move.
Chart #3 - SPX Cash Index Daily, fib on the downmove
Much less gaps then before, and on the upside we have CURRENT confluence of fib 38.2 with DMA200, and Halfback + one of the unfilled gaps. Weak market should not go above 38.2, and very weak market could lose Friday low fast.
What I personally find as a tell of weakness, was Friday PA. We had a wide range both on SPX and on DAX, and market really didn't react much on the Powell speech. When sellers can't move below a support, and they are trying entire session, then short covering above the upper edge of the range is the usual thing. That didn't happen. Some upside movement in last 30 minutes of the futures session was not very convincing. Not only that, but Weekend quotes of IG Markets suggest a weak start of futures sessions on Monday.
Chart #4 - VIX Weekly
Prior occasions when "Fear Index" was around 50. In the last 12 years, only time we had VIX above 50, was in GFC of 2008. There are plenty of traders that can't handle VIX at 25, yet alone at 50 - so as written here last week, and on Twitter numerous times, and in every Morning notes since we got this - ADJUST YOUR MONEY MANAGEMENT TO CURRENT CONDITIONS. Prior down moves ended when VIX was around 50, so we can use this information also, in gauging the moves on indices.
Chart #5 - Amazon Daily
Last week, I had a question: What are the leading stocks doing?
Namely, FAANG and Microsoft. About Amazon, I wrote: Amazon IMO has a key level around 2040, with bears waiting below it.
And we are below it. Big gap up on Earnings report is completely filled. Price below 2040. Check other names on Daily charts on your own.
Moving to German market.
Chart #6 - DAX Cash Index Weekly
Updated chart from last week. Daily channel broken, and more clearly on next cnart.
Chart #7 - FDAX Daily
Updated FDAX chart from last week. Will be very important to see on Monday, can price hold above Friday lows and 11,800 or not. On the up move, most important resistance would be area around 12,500 - where we also have 38.2 fib of the downside move, and DMA200 as well. Major resistance is ~12,500 and ~12,885. However, very weak market could lose 11,800 fast, and that is a risk for buyers.
Chart #8 - SPX, NDX and DAX Monthly
Since February ended, and we are starting new month, it is not a bad idea to take a glance to Monthly charts also, where we can immediately see that DAX is weaker than US indices, and that NDX is stronger than SPX. I like to mention RUT as well, and nothing changed there, still weaker than big brothers.
Can we be prepared for this?
IMO - we can, as long as we know where is the risk, and where is invalidation point for our trades. In volatile times, day traders can have opportunities on both end, and it is important to know how to approach to longs and to shorts. Which ones are going to be "hit and run", and which ones can provide bigger targets, and even be swing trades.
Chart #9 - DAX 60 min chart, with excerpts from Morning notes, for the past week
If you are prepared well, and know how to read market in real-time, these times could be very good for you. My own bias, that I used in Morning notes, was neutral-bearish or bearish the entire week. Risk management must be rigid, and big winners require a directional conviction as well. Friday was a good example how we got lots of opportunities in that 300 point daily range, how we could make good trades from edges of the range, or as trendline breaks.
As written above, Friday PA was concerning, since it can be just a range in a down trend. Move is news driven, and is emotional, but is anything improved over the weekend? No. More cases, more people infected. Human tragedy is as always in the second plan - since this is the society we live in - no empathy and corporation chasing profits. Sad. Now, that profit is in danger, since economic repercussions of this is hard to grasp at this point. If market doesn't like anything - that would be uncertainty. So, people could continue to sell, and ask questions later. So far, this is 15-16% drop. It could easily be a 20% drop. As written before - SPX has a 32% room to the downside just to the Dec 2018 low. In LTF analyses I was both right and wrong before. Right to say prior to Dec 2018 that it is likely going lower, and wrong when drop happen, since I was thinking of market making double bottom, and not a "V" reversal. I think that one of the bearish scenarios is just that - making double bottom at one point. Just where?
Monday will be very very important. Is market heading higher? If so, likely rips are going to be sold. If we don't get any rip, but down, below Friday low, and HOLD below - that would be very bearish thing then, that could lead to bear market. Whatever happens - let's hope that the cure will be found SOON, since making money is one thing, and losing lives is another.
In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX.