Week of July 3rd, 2023
SPX new 52 week highs, what's next?
In last weeks’ newsletter I gave the key level of 4350 on $SPX and outlined how the side that took control of that level would get the next 100-125 points.
Key Levels: 4350 will be the key level for the week.
Bullish Trajectory: If bulls can hold 4350 then the multiple H&S patterns will likely fail and SPX will bounce towards 4444 and possibly 4475.
Sure enough the bulls took control of 4350 early in the week and took us up to 4458 before a pullback in the last hour before the close. We alerted SPY $440C JUL 21 in the discord at 2.75 and these went deep ITM this past week to 7.82 for a solid 2.8X move. We also alerted IWM $190C JUL 21, they went as low as .70 to 2.40+ as well. Some other decent wins were the longs on TSLA and CCL.
SPY 0.00%↑ last week invalidated the bearish harami pattern when the pullback lacked the needed impulsiveness and rallied sharply back to make new 52 week highs. RSI is giving a warning and we closed at the top of the BB. We also left a significant a significant gap below at 438.28 which likely sets the stage for a double top type formation to follow this upcoming week. We also noticed a large amount of call selling and put layering activity out to August, September & October strikes amid increased bullish sentiment. We also noticed a large DP sell right before the close on Friday.
We’ve noted several times that it’s our stance that this continues to be a bear market rally and the fundamentals and macros do not support the current valuations and prices. That does not mean you cannot trade upside like we did with the 440C, it means to keep your sentiment and emotions in check as this can quickly unravel when the majority becomes too comfortable and likely in the most inconvenient way.
Back at 3850 we outlined a path to 4500 by summer and then a reversion and drop for the last half of the year. It seems that so far we are doing just that. At 3850, the majority did not believe that we could see 4500 or ATH. Now, it seems the majority now believes that 4500+ is likely and that there will not be a drop because the rest of the year is “seasonally bullish.” This market scenario meets all the definitions of “complacency.”
SPX Analysis: SPX continues to be in a bullish trend for the current wave. However there are multiple warnings now at this 4450 level indicating a possible large pullback. Even with that pullback the trend remains bullish until 4200 level is breached and all dips likely get bought until then. However, we are not buyers here at this 4450 level and instead will look to take reshort opportunities here at 4450-4485 area.
Key Levels: 4450 will be the key level for the week.
Bullish Trajectory: If bulls can hold 4450 then the breakout continues to 4475 and then to it’s measured move at 4534.63 which is also the 78.6% fib extension.
Bearish Trajectory: If bears can hold below 4450 level then a pullback will start, more accelerated than the first time to fill the gap at 4390-4398 and if that does not hold then a retest of that 4350 level that was lost last week. If 4350 falls then the next move is towards the 61.8 fib extension at 4311.69 and to the 8ema around 4270.
Our Stance: The combination of VIX being suppressed, AAII sentiment being too high on the bullish side and the selloff in small caps leads us to lean towards a pullback to retest the breakout at 4270-4285. 4450 will be the key level. If we are holding above 4450 the next reshort opportunity will be near 4475-4540.
WHAT TO LOOK OUT FOR THIS WEEK:
Reminder that this week is a short week due to the July 4th holiday on Tuesday and the early close on Monday.
Economic Calendar (High Volatility Events):
For this upcoming week I will be watching the following setups and levels:
SPY 0.00%↑
Watch out for a possible M formation forming here, that gap on Friday has the hallmarks of a euphoric run vs a sustainable run. Typically, if you see a gapup after an extended period of consolidation it can certainly hold for a while because it has built up the energy. However in this case the lack of price testing that level simply on a GDP print and euphoria means the run is on air and has no foundation/base. What that means is that if we were to retest the level, it’s likely going to flush.
444 will be my key level for the week
Bull case: If holds above 444 then target 448-451.76.
Bear case: If bears maintain below 444 then target gap fill at 438.98 and then 8ema at 437.44. If 437.44 falls it may be a quick flush towards 432.85 and 429.61. Big drop and double top plays out if 429.61 falls, which would target 422.23.
Note: Complacency is at high level, the major sentiment among bulls and bears is that its unlikely a strong drop occurs on a holiday week, so it will be interesting to see if the market does make it easy for the holiday as usual, or if it gets most people caught off guard.
QQQ 0.00%↑
QQQ lagged SPY last week. While SPY and ES took out the 52 week highs, the Q’s did not. Q’s still have some room, although they did also leave a gap below on low volume and a relatively weak candle vs SPY.
Bull case: If 370 holds, will target 375.66
Bear case: As long as below 370, likely gap fill comes to 364.89. If 364 falls will target 354.84 and possibly setup a H&S at 349.71
Our Stance on QQQ: Needs breakout retest at 349.71-352 for a sustainable breakout. It’s extended on weekly and very far from the 8ema on weekly. If it retests breakout and bounces, we are likely headed higher to 400. For now, it does not seem like a good RR at 370 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. I am not a buyer at these levels.
TSLA 0.00%↑ Elon Musk issued warning on Friday to investors regarding Q2 delivery numbers. How the market will take this, I do not know, but something to consider as we approach ER. For the past month the flow has been overwhelmingly bullish and we have played the longs on this name. However I did notice some sneaky 200P flow on TSLA the same day as Elon’s commments.
Key level: 258.15
Bull case: RSI has reset back under 70. If bulls can hold above 258.15 can start the next leg up to 285.
Bear case: The consolidation pattern from last week reflects a H&S. Using 258.15 as a LIS, the H&S can fire down to 243 with an overshoot of a gap fill at 235.23
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.
AAPL 0.00%↑ Bull case: Continues to be bullish over 182.94. While above this, can continue higher towards 220 on a larger picture monthly breakout. Now that it has clipped the 3T tag at $194, the key will be if it holds it for the entire week.
Bear case: Can reject at top of the channel at 194-195 area and pullback to lower part of channel and fib at 182.94. Bearish move starts below 182.94 to target 174. A drop below 174 would start a bearish trend down to 153.77.
Our Stance on AAPL: From an investment perspective, the RR does not make much sense going long on AAPL here at 3T valuation as company reports declines in earnings. It appears that the 3T valuation tag has become a magnet, and could see some euphoria around it, however the upside does appear to becoming more and more limited by the day. It is premature to be short on it here, however it’s something we should keep our eyes on every week as this may unravel shortly after the 3T tag. The RSI is overheated and it is at the top of a channel.
GOOGL 0.00%↑
GOOGL on the brink of it’s next large move. Using 117 and 121 as key levels.
Bull case: H&S failure if above 121 which can retarget 125-130
Bear case: H&S breakdown if below 117 which can target 50sma at 116 and gap fill at 112.94
Our Stance on GOOGL: Originally short on GOOGL with a 127 LIS to target 114. Will maintain same LIS as the shorts are longer dated out to January.
AMZN 0.00%↑
Bull case: Continuation towards 200sma on weekly at 132.55 and 50% fib at 135.04. Stock has significantly lagged behind the other big 7 and the flow continues to support the bullish move. Using 122 as a LIS, uptrend in tact towards 135.
Bear case: If 122.39 is lost, can revisit 106. Not alot of supporting flow or technicals for the bear case on AMZN.
Our Stance on AMZN: Bullish bias remains as of the breakout at 104 to target 135. No changes.
BA 0.00%↑
Breakout retest happened last week on BA as it completely retraced and retested the breakout. It has bounced and held for the week but has a shorter term H&S to overcome.
Bull case: Over 210 can see revisit of 220. 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 202 to target 240. Change to short if 202 falls.
/GCQ23 (GOLD)
The setup here is just too beautiful to ignore. It has undergone a test of the bottom of the wedge, + the 200SMA and looks almost ready for a large breakout into 2150+/
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.
Have a wonderful rest of your weekend and holiday week!
-Jovan
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