Week of April 3rd, 2023

$SPY Rising wedge breakout - fakeout?

Last week I sent the warning to be careful shorting (short term / 0dte etc) above 392.34 and sent the following message:

For next week here’s what I will be watching:

$SPY
Shorts only below 392.34. I think trying to short above this level may result in premium crush, unless you are sizing into a big short that is for several weeks or months out. Optimal spot for shorts (shorter term) would be 403.75-406.61 area

This week this held true and we did not trade below that level even 1 day. This led to a breakout from that rising wedge pattern and filling the gap we had left unfilled at 408.14 back on February 16th. Now what?

Gaps - for me - are a reminder that we will revisit that price. So, on this rally, we left a gap unfilled at 396.49. So, even if you were bullish here, a patient bull will remember that we will in fact revisit 396.49, and cheaper prices could be had - vs fomoing or buying into this green candle and premium call expansion.

Technically speaking, we did see a retest of the bear market trendline, which was supported, and the subsequent rally. For this rally to have legs and really confirm that bottom, we need to see it take out the prior wave high at $418.31. Now.. why don’t I like this rally? Too much, too fast, low volume move, no pullbacks, and that unfilled gap. If we fill the downside gap and bounce, then I can see support for a move over 420 on SPY 0.00%↑. For now, I will fade the rally - and use that dotted blue line above as a guide.

8ema and 50SMA are set to cross on SPY next week, however if you look closely, the 200SMA has continuously month over month been trending down, now sitting at 392.62.

SPY 0.00%↑ monthly chart (below) shows multi month consolidation in a tight range between 360-420. This month we put in a lower high vs last month and stopped right at that trendline resistance.

SPY 0.00%↑ weekly chart (below) shows again us reaching that resistance level of this multi month pennant that we are trading in.

QQQ 0.00%↑ has also hit a significant resistant level at 320.96 at the same time with a significantly overbought RSI.

AAPL 0.00%↑ also closed right at significant resistance:

And bank stocks remain under pressure.. with very little recovery off their recent lows so far.

More importantly… the $VIX is showing absolutely 0 fear in the markets right now.

There is a deadly combination here for stocks - and everything is inline with typical complacency. I would urge extreme caution to anyone considering taking large long positions at this point in time.

There have been a few indicators that we may see more rally - such as 135P writing on AMZN 0.00%↑, and that is something to keep in mind, however, we should be seeing those in a larger scale on many tickers if we are to see a rally on SPY over 430. Regardless, I may go for dips on AMZN 0.00%↑ over the next few weeks.

For next week I’ll be watching the following levels: