StrayDog's Weekly Analyses - May 10, 2020

Strong up week on indices behind us.

Here are scheduled news and earnings reports for the next week:

With RWE AG on Thursday, ALL of the DAX30 components companies will finish reporting in this Earnings cycle.


The week before this one, finished as a shooting star, hammer, doji - depending on index. All were on resistances, making pokes above resistance levels.


However -> there was no downside follow through, and we got an up move.



Chart #1 - ES_F and NQ_F Weekly


This chart - yet again - illustrate that saying from Jim Dalton: "Price is an advertising mechanism", and how ONE single candle doesn't mean all that much. Higher highs on Nasdaq, which is now positive YOD and dragging SPX with it.



Chart #2 - SnP 500 Daily, Futures and Index


Poke above 61.8 fib retrace of the down move from ATH to the March lows and down move later, failed to provide lower lows, and market still with the grinding up price action. Heading toward 3000, where we have unfilled gap on SPX and DMA200. Leaving gaps behind.



Chart #3 - Nasdaq 100 Daily, Futures and Index


Nasdaq 100 performing like a beast, with every liquidation break bought, every dip bought, higher lows all the way, and price poking inside large 200+ handles gap. Top of this gap is at 9406. Leaving gaps behind, with silly looking candles this past week on Index. Remember that on one strong down day, many gaps can be filled, and moving higher like this, does not make a strong supports below.


Question: Can SPX and NDX hit resistance at the same time? SPX 3000 and NDX 9406? That would be short term sell opportunity, but FOR NOW - this kind of PA is the one that favours buyers. Volatility also going down.



Chart #4 - VIX Weekly


VIX closed at 27.98 on Friday.


"Historic job losses" on Friday - when the best trading setup as we will see later in this blog was classic Buy-The-Dip, markets grinding higher, volatility is going down. All favors BTD markets. Since as written in the last Weekly Analyses:


Stay open for test of lows, stay open for just short term weakness in indices. Tempo and momentum are required for more downside, fast tempo and strong momentum (NOT the kind we get on Thu/Fri but better then that), breakdowns of supports. Without that, markets can make just another range, and grind higher. Start of futures session on Monday will give us some clues, and RTH open as well. Keep in mind S and R levels, find good inflection points on your charts, since good trading location is your best trading edge.

We didn't get any fast tempo, so market continued to grind higher, and same happen on German DAX as well.


In this article: Why the stock market is up even with historic job losses, one of the lines is ""market is discounting what’s going to happen six months from now, when most states will be getting back to business."


Markets tends to frontrun data and to move higher on hopes, and the question can also be again - do we get a test of the lows at one point, OR all of this coronavirus drop was more like a flash crash event, and not a "real" bear market, and lows are already in, just higher from here? This is very hard to guess, at this point.


As market veteran Walter Deemer said in his tweet, which force will prove stronger:



I will also quote Adam Mancini, for his opinion and chart of SPX:


I will look for signs of slowing momentum and possible divergences, and as before - stick to day trading and zone-2-zone approach in the direction of less risk.


Let's observe German DAX now.


Chart #5 - DAX 240 min, D, W



Week started with the gap down, AFTER the rejection from the big gap above. With price back in the former range, expectation was that we could get a trip down to the bottom of the range #4. As always - downside continuation NEEDS faster tempo and momentum, something that we didn't get, and "when market doesn't do what it 'should' do, the opposite may happen". Three tests of resistance, higher lows, and on Friday market made another breakout, with overnight gap up over resistance, leaving a unfilled gap.


Buyers need to hold above 10,760 in order to move again toward 11,280 and to try to fill the former large gap, which has the top at 11,447. Sellers chance is to push price again below 10,760, hold there and push lower. Current PA favours buyers at this point.


Final thoughts

On the way down, many people were stubborn, trying to catch a falling knife, thinking of coronavirus like "just a flu", and markets went down heavily, leaving dip buyers with burned accounts. On the way up, now another group of traders can lose on stubbornness also, holding shorts, IF we don't get test of March lows. Personally, in these times, when it is VERY HARD to predict future moves on large time frames - I am thankful of my day-trading approach and being flat over the weekends. I have seen plenty of losers dragging for too much time, trades turned from day trades into "positions"...


“If you can’t take a small loss, sooner or later you will take the mother of all losses.- Ed Seykota

Make sure that every trade of yours has invalidation point. If May contract of Crude Oil going to minus 40 was not good example for all traders to take care of Money / Trade Management, I don't know what is.



Example of simple trading setup


This is a setup from Friday, May 8, 2020 on SPX (ES_F chart here).

Very simple BTD setup in a bullish environment. Right after the open, strong market tests previous day high. Context is important. What kind of market do we have? Which side current PA favours?


One of the day trading rules is - No setup, no entry.

If you lose money out of boredom, or on second grade setups, than you can lose conviction to take the right ones, the "low hanging fruit" like this one.


This would be it for this Weekly 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