StrayDog's Weekly Analyses, March 22, 2020


>> Analyses from the short-term trader point of view


Another down week behind us, with disappointing SPX close on Friday, at the bottom of the weekly range. Scheduled data releases for next week are in table below.

Most important data will be PMIs on Tuesday, and very important - US Unemployment Claims on Thursday.


Moving to charts now.


Chart #1 - SPX Daily


We had 17 unfilled gaps on the up move from Oct lows to ATH. Now, in that part, there are 6 new gaps. Only on the bounce from Oct lows we had two consecutive up days, and nowhere else in the entire down move. Friday close was at the bottom of the range and almost 32% away from ATH.


Chart #2 - SPX Monthly

Market is news driven, down move was fast, and bullish scenario - even a short-term one - requires market to hold support. Spring can be a large one, given the size of the down move and volatility, but maybe the chance was missed last week.


We could get a gap down on Monday, and IMO - Monday and Tuesday will be important to see is market going further down or not. After receiving billions and trillions of stimulus, Friday close is not a positive sign. That is a change of behaviour. As said before - bearish scenario is holding below Dec 2018 low, and entire "Trump rally" would be in danger. Circles on chart are fib retraces 38.2 / 50 and 61.8 from the entire Bull market starting in spring 2009. Halfback is around 2029.


Chart #3 - VIX Weekly

Trading with VIX at 80+ is not easy, even for skilled and experienced traders.


Chart #4 - VDAX Weekly

DAX volatility index having new ATH.


Chart #5 - DAX Daily

This is a zoom on just a few previous weeks. While DAX cash made a double bottom around 8255, DAX futures went below 8000 briefly in Thursday premarket session. Question is - will Index revisit Futures low or not. IF SPX goes below its recent range, then odds are increasing for that.


Good chance of gap down on Monday. For DAX to stabilize, it need to HOLD this double bottom, to move above 8750 and to push above the upper part of the range from last week.


Chart #6 - DAX Monthly

DAX Friday close is at 8929. We had that bounce from 8150-400 area - but a real bounce after market dropping more than 5500 points, should be a bigger one. This, so far, was just a dead cat bounce. Like on SPX, Monday and Tuesday PA will be important. Below this area, next LTF S is 7600 - a 2011 high.


Final thoughts



SPX was grinding higher for months, leaving gaps behind, like complacent market would do. On a upsloping channel breakdown, investors must react, at least to understand the danger of sharp liquidation break, to move stops higher, as was said many weeks ago. We can't know what can be the trigger for a Bear market in advance, but we can be prepared to take action, when things go south. Next warning was Black Swan Event of Oil dropping 30% overnight.

Many traders have never traded in the Bear market. That is why there were so many people killed in dip buying attempts.


As a trader involved in markets from 2004, I can tell you this: This Bear market is different. Last one, GFC 2008 was a financial Bear market. VIX exploded, business were ruined, market crashed, people was afraid of losing their jobs and savings. Now - and thanks to media and some politicians spreading panic - people are afraid not only for their wealth and jobs, but for their health, and for lives of their loved ones. Cities in lockdowns - no financial stimulus can relieve you of that. There are reports of many laboratories working 24/7 in attempts to find a vaccine. THAT NEWS - of the working vaccine - that is the one that is going to be a game changer, a trigger for a big relief rally, that likely is going to be the mother of all short covering rallies (you can find examples on Volkswagen and Tesla, how large short covering rally can be).

Every bear market so far had big short covering rallies. This one - everything is super fast here. One day rallies, ranges, down. The economic consequences of coronavirus pandemic are yet to be calculated. First data would be US Unemployment Claims on Thursday. Recession - the one that was mentioned so many times before - now have a reason to be the reality.


From a day trading point of view - adapting to these conditions, trading this environment, will be good experience for us. Make no mistake - this is not the last Bear market in history.


Chart #7 - Mar 17 - DAX , DAILY DOSE OF DAX zones

Good idea is to document setups and repetitive things that market is doing in this volatile times. Even with VIX at 80+ and VDAX at history highs - market are behaving technically.

 

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