Week of July 17th, 2023

OPEX week ahead, $SPY continuation before FOMC or pullback time?

Jul 16, 2023

Hi everyone! I hope you are all having a wonderful weekend! On Friday we again saw a change in trend where for the second consecutive week, market price dropped throughout the day and closed on the lower end of the range. This is in stark contrast to the months prior, where Fridays were characterized by confident rally days. It appears that the market dynamics have shifted, and we're experiencing a departure from the previously established pattern.

In our previous newsletter, I highlighted the significant level of 4450 on the $SPX and mentioned that if the bulls managed to maintain this level, we could expect a notable upward movement towards the measured move target of 4534.

Key Levels: 4450 will continue to be the key level for the week. Chop between 4390-4450.

Bullish Trajectory: If bulls can push over and hold 4450 then the breakout continues to 4475-4500 and then to it’s measured move at 4534.63 which is also the 78.6% fib extension.

On Wednesday, the bulls asserted their dominance over the 4450 level following the release of lower-than-expected CPI data, which fueled positive market sentiment. Building on this momentum, Thursday's PPI print further propelled the market higher. Once the key resistance at 4450 was decisively breached, the rally became relentless, driving the market swiftly to 4527, coming within a mere 7 points of our targeted level at 4534. The week concluded with a minor pullback, resulting in a closing level of 4505.

In our previous newsletter, I issued a cautionary note regarding the formation of a gravestone doji on SPY 0.00%↑ during the preceding Friday's trading session. I emphasized the importance of confirming this pattern with a significant downward gap and a subsequent close below the doji line. Failure to do so would likely result in a period of market consolidation leading up to the release of the CPI data, with the potential for a breakout if the price surpassed the 444 level. In such a scenario, our target range for the breakout was set at 448-451.76.
See below:

In our vibrant Discord community, we experienced an exceptional week filled with numerous winning trades that were highlighted in our previous newsletter. We saw impressive performance across a variety of stocks, including notable gains in $GDX, $BA, $NEM, $TLT, $PYPL, $PENN, $COIN, $SPY, $TSLA, and many more.

The synergy within our Discord group enables us to share valuable insights, exchange ideas, and identify compelling trading opportunities. We continue to foster a supportive environment where members can learn, grow, and benefit from each other's expertise.

As we move forward, let's maintain our commitment to disciplined trading strategies, effective risk management, and ongoing collaboration. Together, we can strive for even greater achievements and capitalize on the myriad opportunities presented by the market. You can signup for our discord here at: https://jmoptiontrading.com/collections/membership-plans

Throughout our communications, we have consistently expressed our viewpoint that the current market rally should be approached with caution, as we believe it to be a bear market rally driven by factors that do not align with fundamental and macroeconomic realities. However, it's essential to note that this perspective doesn't imply that one cannot engage in upside trades, such as the 440C, for example. Rather, it serves as a reminder to remain mindful of market sentiment and emotions, as market dynamics can swiftly shift when the majority becomes overly comfortable, often leading to inconvenient outcomes.

For day traders, the focus primarily revolves around short-term trends and may not require extensive consideration of the broader, long-term picture. However, it remains crucial to exercise diligence and adaptability in response to evolving market conditions.

Previously, when the market stood at 3850, we outlined a trajectory that anticipated a rise to 4500 by summer, followed by a subsequent reversion and decline in the latter half of the year. It appears that the market has adhered to this projected path thus far. Initially, many doubted the feasibility of reaching 4500 or all-time highs at 3850. However, the prevailing sentiment has now shifted, with the majority expecting all time high levels and dismissing the possibility of a significant market drop due to the perceived "seasonal bullishness" of the remaining year. This prevailing sentiment of unwavering optimism can be seen as a classic case of complacency.

It is important to remain vigilant and aware of these market dynamics, as they have the potential to impact trading decisions and risk management strategies.

Bullish sentiment continues to increase & we remain in extreme greed.

WHAT TO LOOK OUT FOR THIS WEEK:

Economic Calendar (High Volatility Events):

For this upcoming week I will be watching the following setups and levels:

SPX Analysis:

The SPX is persistently displaying a strong bullish trend in the current wave. However, it is essential to be mindful of several cautionary signals as we approach the upper boundary of the bullish channel. Currently, SPX is well above the upper Bollinger Band, indicating an extended price move, accompanied by an RSI reading of 70, signaling potential overbought conditions. Moreover, there is substantial resistance ahead at the significant 4534 Fibonacci retracement level. These factors collectively raise awareness of the potential challenges and suggest a need for careful assessment and strategic decision-making as we navigate the market in the days ahead.

Key Levels: 4514 will be the key level for the week

Bullish Trajectory: The current bullish momentum suggests that if the bulls can successfully surpass and maintain a hold above the 4514 level, it sets the stage for a potential advance towards the 4534 Fibonacci level, with further upside potential towards the upper boundary of the channel at 4566.

Bearish Trajectory: Conversely, if the bears manage to keep the price below the 4514 level, a pullback towards the 8-day exponential moving average (8ema) and a retracement to the support of the ascending triangle around 4450-4460 becomes likely. Should the 4450 level fail to hold, further downside movement towards 4414 could come into play.

Our Stance: Regardless of whether the market exhibits a bullish or bearish bias, both scenarios suggest the possibility of a pullback. For the bulls, this would create a higher low, potentially paving the way for a continuation of the upward trajectory. On the other hand, for the bears, a failed breakout could materialize. Personally, I am inclined towards anticipating a pullback to retest the breakout level at 4450, as long as the market does not close above 4514. However, should we see sustained strength above 4514, the next potential opportunity for short positions may arise in the range of 4550-4566.

SPY 0.00%↑
Similar to SPX, SPY is well above the upper Bollinger Band, overbought RSI and massive resistance above at that 451.76 level. Pullback is needed to form a higher low, regardless of whether you have a bullish or bearish bias.

Key level for the week is 449.56

Bull case: If above 449.56 then target 451.76 with an overshoot of 453.46
Bear case: If below 449.56 then target 447.45 then 444.61 with an overshoot of 442.97 (gap fill) and 441. Bears would need to take out 441 for any break of the bullish trends. If they do, then target 436.21

Note: In order for the current uptrend to sustain its momentum, a pullback becomes essential. Without a proper pullback, the risk of a potential "rug pull" or a sudden crash-like scenario significantly increases. Pullbacks play a crucial role in healthy market dynamics, as they allow stocks to gather energy and liquidity, providing the foundation for further upward movement. When pullbacks are absent, a rally can lack substance and become vulnerable to swift and substantial declines. It is imperative to recognize the importance of pullbacks in maintaining a robust and sustainable market rally.

QQQ 0.00%↑
QQQ again took the lead last week as there was a rotation back out of small caps and into tech, it broke out to the upside and gapped over the 78.6% fib retracement.

Key level for the week is: 375.66

Bull case: If holding above 375.66 a retest of the highs at 383 is likely with a possible overshoot towards 385 and 387.

Bear case: A retest of fib level is likely at 375.66. If that falls, then an 8ema retracement at 372.58 and breakout retest at 367-370 is likely.

Our Stance on QQQ: Has gone up on air and has not retested its breakout at that 342 level. It’s extended on weekly and very far from the 8ema on weekly. It’s fully above the upper BB and the lower BB is curling down. If it retests breakout and bounces, it’s a more sustainable rally. For now, it does not seem like a good RR at 383 as upside appears to be minimal while downside can be much larger. A sustainable market cannot depend on 8 stocks, and that is what is fueling this market right now.

TSLA 0.00%↑ ER approaching on 7-19 after close.

Key level: 284

Bull case: Above 284 target 294, 295.05. If above that then 311 is likely.

Bear case: Below 284 a retest of 258.15 is likely

Our Stance on TSLA: I went long on TSLA at 111 and no changes to the longer term bullish outlook so far, TSLA is in a clear uptrend and on uptrends, dips end up being bought. Nothing to do but set TSL’s if long and ride it up as far as it goes.

GOOGL 0.00%↑
One of the standout performers this past week, as highlighted in our previous newsletter, was GOOGL. We mentioned that it was on the brink of its next large move and we saw a massive rally from 115 back to that stubborn 125 level.

Key level remains 125.49.

Bull case: If bulls hold 125.39 then can push to 129 and 136.95.

Bear case: If fails again at 125.39, possible retest of 121 area.

AMZN 0.00%↑
Finally reached our $135 target we had set back in May this past week.

Key level for the week: 135.04

Bull case: If holding 135.04 bulls can push towards next target at 143.66

Bear case: If 135.04 fails to hold then possible 8ema retest at 131.29 and 21ema at 128.62 if that does not hold.

Our Stance on AMZN: Bullish bias remains as of the breakout at 104 with our initial target of 135. Add/Raise trail stops now.

BA 0.00%↑
Breakout retest and go has occurred however sharp rejection at 220. Our initial target was 204 to 220 and we got 221.56 before a sharp pullback to close the week at 213.

Bull case: Over 220 is breakout to $240.

Bear case: Under 204.36 can see breakdown to 193.89. Below 193.89 can see failure to 183.81.

Our Stance on BA: Long with a LIS at 204 (raised from 202) to target 240.

/GCQ23 (GOLD)
No changes from prior week, last week we broke out of the wedge and ran towards our initial target. 1948 remains the key level.

Bull case: Above 1948 breakout begins to 1977, 2000, 2025, 2059, 2102 and 2156.

Our Stance on GOLD: Long with a LIS at 1894 to target 2156.

TLT 0.00%↑
Massive divergence between stocks and bonds continues. We got a good move from 98 to 102 last week and my stance on this remains the same: Long 98 with a 96 LIS to target 109-110.

BABA 0.00%↑
Continued consolidation inside this wedge. It’s getting very close to a large breakout ($60+) and deserves a spot on your watch list.

Key level for breakout is $100.

Bull case: Over $100 target 119.68 and then $157.83

Bear case: Under $75.87 target $58.01.

XLE 0.00%↑
XLE attempted to breakout last week and failed epically getting a sharp rejection at the 200sma (84.29). We now want to watch that 82.68 level as if it is reclaimed it will be similar to SPY’s backtest that has held 3 months + of rally since.

Key level is 82.68

Bull case: Over 82.68 will mark start of sustained breakout towards 87.35 and 93.91, this would be a good candidate for leap calls if over 82.68.

Bear case: Under $82 can continue down to 79.85, 79.40.

Our stance on XLE: Can take a long leap if holding 82.68, using 79 as a LIS to target 87.35

Last but not least….. charts may not apply much to this one, but either way seeing some familiar patterns…

NVDA 0.00%↑
NVDA put in a dark cloud cover reversal on Friday. It’s well above the upper BB and very far from the 8ema with a gap below at 439.35.

Using 456 as a LIS, can take a short to revisit 437.98 and 426.72.