In last weeks’ newsletter I mentioned the pullback setup:
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.
We alerted SPY $438P JUN 30 in the discord at 2.45 on Friday and these went deep ITM this past week as we pulled back from $442 to $432 on SPY and 4448 to 4341 on SPX. We noted how close it was to the top of the channel, how it was above the upper BB and the high likelihood of a breakout retest back near 422.23.
SPY closed last week in a bearish harami pattern, something I’ve posted before when it occurred back on February and led to a decent sized pullback from 416 to 380. Bearish haramis are typically seen at tops of uptrends and indicate a reversal in trend.
Here’s a refresher:
We’ve noted several times as well that it’s our stance that this continues to be a bear market rally and it can be seen if you look at the S&P equal weight vs SPY with the big 8 tech stocks accounting for most of the gains:
It’s also important to note that the ratio of small-caps to large-caps is at the covid crash lows of 2020. It closed at new lows for the year. The narrative for the bulls was that small-caps were going to lead the next phase higher for the stock market and yet we saw another failed breakout in small caps.
SPX Analysis: SPX put in a bearish harami last week. On this dip it got a nice RSI reset back to low 60’s. The immediate week following this week is important as it will either confirm the bearish reversal or it will invalidate it and head higher.
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.
Bearish Trajectory: If bears take out the 4350 level then the pullback will continue towards the 61.8 fib extension at 4311.69 and to the 8ema around 4270. This would be a breakout retest at that 4270-4285 area and will set the tone for the weeks following that as bulls will need to hold that, otherwise the highs are in for this cycle.
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. 4350 will be the key level. If we are holding above 4350 the next reshort opportunity will be near 4475-4485.
WHAT TO LOOK OUT FOR THIS WEEK:
Earnings Announcements:
Speeches and Reports:
For this upcoming week I will be watching the following setups and levels:
SPY 0.00%↑
Need to watch for the confirmation or invalidation of the bearish harami (weekly candle) that was put in last week.
435.14 key level for the week.
Bull case: If holds above 435.14 then target 445-448.
Bear case: If bears maintain below 435.14 then target 429.61. If 429.61 falls, then 422.23-425
Our Stance on SPY: Breakout retest is needed for sustainable breakout. SPY broke out on June 2nd with a large gap up that has remained unfilled. This usually always means that we must return and test price at that level.
Note: There is 2 layers of breakouts. There is a minor bull flag breakout from 428.33-429.61 and a major megaphone breakout from 422.23. Ideally we would backtest the entire breakout and then make a decision. However be prepared at 429.61 for a bounce, if short would hold a TSL there.
QQQ 0.00%↑
RSI still overbought on weekly. Key level for the week is 364.
Bull case: If 364 holds, will target 375.66
Bear case: As long as below 364, 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. If it fails here, it’s a short to the 331-336.
TSLA 0.00%↑ Finally some consolidation last week after a nonstop run for 30 days from 165 to 276
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. For re-entry, 235 looks ideal for now.
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.
Bear case: Below 182.94 a 2B Top reversal would be in and signal a move to the lower end of the channel at 178. 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.
Bull case: H&S failure if above 123 which can retarget 125-130
Bear case: H&S breakdown if below 118 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. We went as low as 118 before bouncing back on Friday. 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. This upcoming week will either result in breakout or breakdown.
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.
Something non-market specific to reflect on and consider: