StrayDog's Weekly Analyses - July 19, 2020

Two challenging weeks behind us. Markets like SPX and German DAX searching catalyst to break higher, while NDX was making ATHs and breached above 11,000. For day traders - lower opportunity environment, especially for breakout traders. Being able to adjust to market conditions is the thing that will separate YOU from the crowd. Plenty of range edges fading and false breaks - that is what we got, and some of them was very good setups.


General observation: Volatility and Daily ATRs are going down across the board. Markets are coiling, and that will at the end produce directional moves. EU Economic Summit can move markets, depending of decisions made there.


Next week: No point to make a table, since absolutely nothing is important out of the scheduled data until Friday - July 24th, when we have French, German, EU, UK and US Flash Manufacturing and Services PMIs. Most important Earnings come at Wednesday, July 22nd, with Microsoft and Tesla reporting in the afterhours.



Chart #1 - Weekly "Warm-up" chart


Just to observe relative strength. Also to note the divergence between Nasdaq 100 and other indices. Narrow leadership, and FAANGMAN stocks that are dragging the entire US market higher. Similar on German DAX, there are SAP and Linde with new ATHs, while other stocks are lagging.



Chart #2 - NQ_F Daily


Let's start with the beast, Nasdaq 100. Still inside the trading channel, poked above it, and above 11,000 round number. Currently also in the 10,350-850 range. Support is 10,350 and lower end of the channel. Wednesday and Microsoft + Tesla Earnings is something to watch. A week later: Facebook on July 29th, and Apple, Amazon and Google on July 30th.


I would also keep an eye on Apple and similar channel there.


This is interesting data about NDX from Macro Charts:



Chart #3 - SPX Daily


SPX: Balance breakout, only for price to make yet another 3-day balance. Located under the resistance. Higher lows and pressuring resistance.



Chart #4 - DAX Daily


DAX: Very similar to SPX, and same thing here - pressuring resistance and making higher lows. Consolidations can take months, before the directional move, as we can see on this chart, and Nov 2019 - Feb 2020 period.


Conclusion


SPX and DAX have same scenarios:

#1 Break of the Resistance. (3230 area on SPX and 12,950-13,000 area on DAX) can lead to bottom end of big unfilled gap downs, from the February drop. Filling those gaps - and upper edge of it is another target, while ATH is third.


#2 Failure. This can lead to consolidation below Resistance, and drop below next Support (3115 on SPX and around 12,400 on DAX) can lead into heavier selling and correction.


As said a few days ago in one of the Recap videos: Chop and consolidation are not bearish. All of this that we are seeing is a preparation for a breakout attempt. As all attempts - it can succeed or fail. Nasty failures comes in times like this - when markets are complacent, and ignoring the news. Markets that not really care about Earnings reports or coronavirus second wave, because they got huge stimulus. And then this, what happened to Australian index ASX 200 can happen - breakout that looked OK until it failed. Breakout point go tested, and looked hunky-dory. A scenario that got many traders unprepared, leading to emotional Long liquidation and New Sellers selling, a most potent combination that leads into heavy selling. This is a chart from Weekly Analysis from May 3rd as an example of false break.


Example of triangle breakout failure



So, nothing is a given thing in trading, and rarely we can have a free lunch. In this kind of environment, being "nimble and flexible" and changing side is essential to success in day trading. Wait for the setup.


Here are some examples from US markets:



Here are some from German DAX, from Setups Gallery of DAILY DOSE OF DAX:



As you can see from the above examples, for day traders there are opportunities for both long and short. But we must be aware of the bigger picture as well.


That is it for this blog!


 

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.


Cheers, StrayDog