Week of June 19th, 2023

Massive rally on $SPX despite hawkish fed, trading range in bullish channel.

For the past several weeks I outlined a path to 4300 on SPX and recently shifted the tone back into a short bias but placed a 4309 LIS on SPX. Once we overcame that level, we saw a massive surge to 4435+. We are in extreme greed, technicals all point towards a pullback, but day after day there continues to be green candles with absolutely 0 dips or pullbacks. Now what?

Well let’s take a look at the weekly chart:

As you can see SPX continues to trade within this bullish channel and is nearing the top portion of it. This past explosive move is due to the 45 days+ that SPX was trading in a tight 4100-4200 range. The longer the consolidation, the more explosive the moves tend to be. I think it’s a relatively low risk high reward trade to short near this top area - not for a crash or anything but simply the high chance of pullback/correction towards middle or lower end of the channel. If you shorted early, this would be a good DCA spot to lower your cost average and turn the loss into a profit on the pullback.

While nothing has changed in my view regarding market outlook for the future, it’s important to separate trading vs investing concepts. My market outlook is that we are headed back below 4000 at some point later this year or next. If I am investor, that means I am more likely to wait for more attractive prices before initiating longs or leaps. If I’m a trader, I probably don’t care where it will be next year as the only important thing is what is happening right this minute and trading that move.

Something to keep in mind is that for a long time now, the bearish narrative was dominant. And all of the bearish thesis and concerns have actually materialized however it is not reflected in the stock market prices. And well that’s mainly because we have never experienced a crash when it was the mass majority opinion that a crash would happen. I’ve said over and over the market will do whatever it takes in order to convince the masses to think the opposite. So if everyone was bearish and expecting a crash, naturally the market must hold and head higher despite any bad news and headlines (definition of complacency stage) until the majority have abandoned their prior belief/outlook.

Based on this sentiment gauge and the fact that the sentiment change always comes AFTER the big move, it is highly likely that the market is close to accomplishing its task in convincing the masses that the worst is over despite the FED delivering a clear message that it is not. One thing I’ve learned through the years is to never fight the FED. If they are buying, you buy, if they are selling, you sell. In 2020 they bought as the markets panicked and sold off. In 2022 they have been selling and continue to sell now in 2023.

We continue to see some quality setups for the weeks and months to come which are shared with paid subscribers and in the discord. You can join the discord at (jmoptiontrading.com)

Here is the calendar for next week, note that Powell will be relevant on Wednesday and Thursday:

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