TLDR: I expect SPY to drop to 395 at least. I do expect a reversal soon, maybe before CPI and then selling off or after CPI depending on the numbers, idk.
SPY on the 1 hour rode the 8 EMA down again. RSI almost bottomed, but I’m hesitant to call a bottom until the MA touches the oversold area. It’s right above the oversold area right now. Overall, 1 hour is screaming bearish.
On the daily, we’re almost at the downtrend line from the Jan and Feb lows. Also the green line is a long term trendline of SPY from 2008 which SPY has respected. With these supports at around 395, I expect some strong bounce. Especially considering how overextended from the moving averages we are. I expect a test of the 8 EMA soon before a dump incoming. RSI on SPY isn’t really down too much right now, which is something to note.
VIX is looking bearish. It broke above the blue downtrend line, which it has respected all this time. This makes me think that there’s more downside to come. There’s another downtrend it’s kinda respected which VIX will approach soon. I do expect more downside tomorrow, but a bounce soon after 395ish.
PCC is still going up, and usually the peak represents the day before the bottom, so again, I’m expecting a bottom soon seeing that the PCC is near the bottom levels again.
Overall, I expect a bit more downside before a pump which will go to probably 410-413 which is where the 8 EMA on the daily is. I expect people to be bull trapped there and then get rug pulled. Overall, this is a strong ass downtrend and if you have money, buying 1 week out ATM puts and being able to average down at least once is easy money. If you’re broke like me, you have to play these scalps and have good entries and exits.
Does anyone think the headline CPI data on Wednesday might get fucked with in order to deliver “Peak Inflation” in March? Especially as it is election year. Idk. Too tinfoil? Maybe.
One thing I noticed was that everytime Biden comes out and talks about inflation and shit before CPI, the data isn’t as bad as people feared and we rally. So I’m kinda expecting a rally off CPI report even if it’s not good bc it won’t be as bad as people expected
Looking at futes, fuck 395, we drilling for anal beads stuck up my ass. My supports below 400 are: 399.35, 397.41, 394.88, 389.88, 385.83, 381.79, and 372.97. My supports are often +/- 10 cents. Just in case this helps anyone
Good video talking about a potential bull case scenario. Talks about the earnings and PE ratio which shows that we’re still in a strong economy and rn is just fear. Something to keep in mind
TLDR: I think that CPI will show a showing down of inflation or peak inflation which would be the catalyst for a bear market rally. I think if CPI is just meh/ expectations, we see a run to 428-430 and if it’s peak inflation, we see a run to 440. Looking at the 10 year go down, I think markets are expecting peak inflation.
Looking at SPY 1 hour, we tried to break past the 21 EMA but failed both times. What’s interesting to see is that the RSI is showing a bullish divergence again. Also the 8 and 21 EMA are coming closer together, showing signs of a potential little bounce. Other than that, nothing much to note.
SPY on the daily kinda just stayed in the same range as yesterday. We bounced off the yellow downtrend line, marking the bottom at around 395. Biden’s speech didn’t do much and I think we’re just waiting to see the CPI. CPI tomorrow will either have us gap fill to 411 and test the 8 EMA or have us go drill for 390. Either way, we’ll see the clear direction tomorrow so it’ll be a fun open.
VIX went down today even though we made a new low. This is bullish and looking at VIX, we’re consistently making lower highs even though SPY is showing lower lows. This is bullish and I think even if CPI shits the bed, we’re going to see a countertrend rally soon.
PCC shows less puts in the market. I suspect that this is just profit taking before CPI. I doubt anyone is actually bullish around here on the day before news. I wouldn’t take this as bullish or bearish because depending on CPI, we can easily flood the markets with puts again.
Looking at the 10 year yields, we might have topped and correcting lower. This might be the reason why tech was so strong today. If tech can start bouncing back, it’ll be a good time for the markets. Also, bonds were up today, and usually when bonds are going up and stocks go down, it’s an early sign that a rally is incoming. There are some early signs that we’re going to see a rally. The headlines “inflation peaked” might start to get passed around which could help sentiment and cause more money to flow into assets. In my opinion, as long as CPI doesn’t show worsening by a significant amount, I think we’ll get a rally. I’m looking for puts starting from 430 or 440 depending on how good CPI is.
Just gonna tweak some numbers and look at the CPI releases before. I’m gonna change my targets from 428/440 to 421/435. 421 being the 21 EMA and 435 being around where we’ll hit the downtrend line. Of course this depends on the CPI and how the markets react to it.
Looking at the last 2 CPI releases, we saw a pump at open that lasted around 30 minutes and then a hard sell off. This was with CPI showing worse numbers. I expect the same trend where we pump at open, but whether we’ll sell off this time is unknown. If CPI is actually showing positive signs, I suspect we’ll continue to rally, but if not, then I guess we’ll bull trap a ton of people before making whiplash look like a genius
Looked back at the Feb and Jan releases too and we had a similar pump at open before sell offs. We have an average pump of around 0.5% in the first 30 mins, so I’ll most likely just play that.
TLDR: The last 2 PPI releases showed markets pumping and not giving a shit while the Feb and Jan releases of PPI showed flat and shitter.
I’m going to put more emphasis on the April and March releases of PPI because I think that’s when the markets really started to focus everything on inflation and all.
It looks like the CPI data release beforehand kinda priced in the impact of PPI. In April and March we see a pretty drastic sell off after the first couple hours of the day and then when PPI comes out, nothing happens and markets just go up. Given how much we fell and the same CPI day pattern we had, I think that tomorrow is just gonna be a green day for whatever reason.
Looking at Feb, we gapped up for some reason and what led to a flat day, but no downside which is still important to note for a PPI reading. Jan had a flat day before and I guess because nothing was priced in, PPI shat the bed.
Overall, looking at the similarities of April and March, I’m willing to bet that the markets go up for whatever reason. Plus looking at other signs such as VIX being down and making lower highs, 10 year yield coming down, RSI still making higher lows with lower lows on price, I think that there’s a good chance that we see green. Of course everything can change, but history does rhyme.
TLDR: Signs that SPY could have a pump, but the pump will most likely be short lived. Probably until 397-398 where we’ll test the breakout of the coiling before looking for 390 and then 386.
SPY on the 1 hour looked like it was about to go bullish before drilling back down. We’re back in a bearish trend as the 8 and 21 EMA are separating and we’re back to riding the 8 EMA down. Something to note is that the RSI is continuing to track upwards, showing bullish momentum and I expect tomorrow to be green to get that bullish divergence play out, but I expect us to drill down shortly after.
SPY on the daily broke out of the coiling range and looking to drill more. Again, I expect a green day tomorrow just to test the breakout of the coiling range which would be around 398. The RSI is barely making new lows which is again kinda bullish, although the volume on these red days are pretty big. Maybe we’ll bottom when the daily RSI MA hits 30.
The VIX is continuously making lower highs. I expect a test of the green upwards trendline where we should see the market pump stop when VIX is at 29. We’re also back below the blue downtrend line which could mean a VIX crush soon.
Looking at PCC, we see that more puts have been entered into the market. Everyone is still bearish and it does seem like yesterday was just closing shorts before CPI.
Looking at the bond market, it’s going up while SPY is going down. Usually this means a SPY pump which lasts around 2 days, but because no one knows when SPY will pump it’s better to just play puts until we see the pump happening. From 4/19-4/27 TLT was going up while SPY was going down. Soon after, SPY had a huge pump upwards before continuing to track lower with TLT. The last time this happened was in February when we had the March pump. Something to note and keep in mind that a random green pump wouldn’t be out of the ordinary here.
The 10 year yield is also looking like it’s starting to roll over. This is bullish for tech and if tech is more bullish, markets are bullish. Of course, this doesn’t mean that markets will suddenly turn bullish, but if the 10 year continues to come down, the markets will react and start to go up for a bear market rally.
Overall, I’m expecting a green day, maybe 2. But I do believe that we’ll go down to test 383 as that’s 20% down from the ATH before bottoming. Judging by how we went down, I don’t think 383 is this week, maybe next week, but I do think it’ll happen most likely. Be careful with position sizing and good luck to all.
Looks like spy is testing this downtrend line it broke out of a month ago-ish, if it breaks and closes below this it could be a pretty hard resistance to break. For now i think it keeps testing it (going down) until it finds a bottom.
TLDR: If we break 393, I think we might have seen the bottom, if we fail the 393 test, I think we’ll see 383 as that’s 20% down from the ATH. Overall, I’m more bullish on the markets and I think that we’ll see a bear market rally soon.
On the 1 hour, we ended right at the 21 EMA. Whether we get rejected off straight at open or blow by to start a reversal will be seen. On the 1 hour, we haven’t made any new RSI lows which is surprising to me. Also something to note is that the RSI ended right in the middle. Looking at the 1 hour, this has usually led to a shitter down the toilet. We’ll see if this happens again. Signs are showing a rejection on SPY, but if we do manage to break up, I think it’s a good sign we’ll see a relief rally.
On the daily, we hit a low of 385.29. This is 19.88% down from the ATH. This is basically a 20% move down and the markets may start to rally now. This would also get the market makers the most money as if we start rallying now, a ton of puts at 380 and 390 would expire worthless tomorrow. Also on the daily, we’re in a wedge and looking like we’ll break out in either direction soon. Bounced off the downtrend line from march and jan and the wedge. Looking at the RSI, it’s almost at 30. Looking at the daily, there’s been very few times where we stay at or below 30 for long. It doesn’t mean that this is the true bottom, but signs are showing that we are close to a local bottom. The test for bulls tomorrow would be to break past 397 and if we do, I see us retracing to the 8 EMA which would get us to around 403.
Looking at VIX, it had another down day even though we made a new low and again below the blue trend line. Even though this looks bullish for the markets, VIX has bounced off the 8 EMA this entire time, so I wouldn’t be surprised if it shoots straight back up and we see SPY go to 383 for the full 20% retracement.
Looking at the put call ratio, we’re back to hella elevated. Typically near these levels, we see some kind of green day the day after. It doesn’t mark the bottom, but it does show overextension and possibly a small relief pump. I don’t know what to expect tomorrow and staying out of the first 30 mins to an hour would probably be the smartest move.
Overall, signs are showing more and more that we’re seeing a local bottom. This has been a very controlled and technical move down and I expect the 20% move down to trigger buying from algos and big money. Next week will most likely determine the direction if we’ll see even more massive selling or a relief rally which will bull trap folks. I have no predictions for tomorrow, although my prediction for 2 weeks from now would be that we’re higher than right now.
TLDR: I think the bottom is in. We might go fill the gap and retest 393, but I don’t think at this point that we’ll make a new low. I think a bear market/ relief rally is starting and we’re going to see a gap fill in the 406-410, retest the 21 EMA which would be at 415, then possibly go track up and retest the 430 range.
Looking at SPY on the 1 hour, we successfully moved past the 8 and 21 EMA, tested the 21 EMA, won, and now tracking upwards following the 8 EMA. The RSI also tested the MA and successfully stayed above. Overall, signs are showing that we are on track for a relief rally and the bottom is in. Also looking at the 1 hour, we might have formed an inverse head and shoulder. To break the neckline and have the pattern play out, we need to break 403. Even if we do break it, 404-406 is a zone of very strong selling. We need to get above those zones to recapture a bear market rally. If the inverse h&s were to play out, we would take the distance from the head to the neckline and move it to the breakout zone. Doing this gives a price target of around 422.
On the SPY daily, we tested the 8 EMA and then got rejected. Volume was very low today which is a worry, but it did pick up EOD. The RSI barely crossed the MA, showing bullishness and possibly showing that we might break the 8 EMA the next trading session. Given that the hourly RSI isn’t that overextended either and we saw a pullback to the 400’s, I don’t think we have a big pullback for a bit. If we do pullback, I would expect us to pullback when we get rejected off of 404-406. A break above 406 means a gap fill to 410, and if this happens, we’re most likely just going to go test the 21 EMA. We haven’t tested the 21 EMA in a while and this would be a good return to the average. If we get rejected off the 21 EMA, we get a top early. If we don’t reject, I would look for a push to the 430’s where we could possibly start to form an inverse h&s on the daily with the neckline at 430.
We got a VIX crush today as we finally broke the 8 EMA and the 21 EMA. We’re looking bearish on the VIX right now which is bullish for the markets. Also we’re right at the uptrend line. Signs are kinda showing that we could see a dump on Monday, but I think overall, we should be up and green.
Looking at PCC, lots of puts either left the market or lots of calls entered the market. PCC did call the bottom, but will it be an one day pump like the last couple times or a multi day rally this time? Monday will tell.
Looking at sentiment, it’s slowly changing. There’s less and less bears and more bulls entering the markets. Even without technicals and just playing by sentiment, it would be good to start to risk off from puts as sentiment is starting to swing the other way and we could get aggressive FOMO.
One thing that’s not positive was that the 10 year yield was up today and the bonds were down. A bounce after some rough selling is expected and as long as we don’t break back above 3% and hold, this should mark the top of the 10 year yield which would be very bullish for the markets, especially Nasdaq/QQQ.
To round off, looking at the weekly SPY chart, we formed a hammer candle. We’re also basically right back at the 100 MA and we might have had a false break down from there. The weekly RSI is also close to overextended and due for a bounce. Also looking at the weekly, we bounced off the 8 EMA twice. Looking at the 8 EMA right now, it’s 422, which could mean that next week’s top could be 422, or maybe we break above it finally and test the 21 EMA.
Overall, I think markets have bottomed so far and we’re going to get a bear market rally. I don’t expect it to be like the March rally, but if shorts decide to cover, we could get a similar very impulsive rally up. Given that more shorts and puts are in the markets compared to the March low, I wouldn’t be surprised at some massive short squeezing around the markets. Of course we’re not going to go up in a straight line. Everyday will provide good buy ins for calls and puts and we just have to play what’s happening.
A full blown rally isn’t confirmed yet as we haven’t really broken through major resistances on the daily, but it’s looking very likely and very likely we’ll start to break through next week. I don’t think this rally will lead to new ATH until the Fed gets more dovish though. Until then, I think we’ll continue to make lower highs and possibly lower lows, although I don’t think we’ll make a low lower than 380.
I agree, short-term, the bottom is in. I think there is a potential for a multi-day rally, and I’ll try to explain as best I can as to why. TL;DR 380 is impossible
Oversold Territory:
I love that you are using the PCC to gauge bottoms (insert “Swole is a bottom” joke here). I think there’s a few more indicators, both technical and macro, that can corroborate your thesis that we could be in for a Bear Market Rally.
This is a picture of the total number of NASDAQ 100 Companies above their 50-Day Moving Averages. We are currently reaching levels we’ve only been in during March 2020, 2018 Taper Tantrum, 2016 Global Growth Scare, 2011 Bear Market, etc. Buy the fear, sell the greed? If you look at NASDAQ 100 Companies above their 200-Day Moving Averages, it tells the same story.
Not as oversold, and to be honest, this is expected. All of tech was the most crowded trade for 2020/2021, which inflated most stocks in the NASDAQ (just look at ARKK bubble). However, I do think there is minimal downside from here in the short-term (still need more data to call a long-term bottom).
Looking at S&P 500 Companies above their 200-Day Moving Averages, this seems to indicate that there is some potential for more downside, however if the oversold NASDAQ stocks start rallying (which they have starting with yesterdays short-covering) then there will be correlation with the rest of the market.
Peak Inflation?
Another thing that is fueling this market rally is inflation expectations.
Today’s Philly Fed Survey showed that inflation expectations dropped to 3% or less while the unemployment rate expectations ticked up from 3.6% to 3.8%, which could help with the “tight” labor market the Feds are nervous about. This Fed survey fueled a rally in the Bond markets, bringing government bond yields lower, and fueling the stock market rally.
5Y5Y Inflation expectations, which take into account nominal and real interest rates, also show signs of peaking, alongside both 5-year and 10-year inflation breakeven rates.
What to Watch
Fed Talk:
Now, most Fed participants support two back-to-back 50 rate hikes for the June and July meetings, but September will be an important month, as Mester suggested today that inflation could show signs of peaking by then. Powell also said they want to see months of data before calling the peak, supporting this thesis. When Mester suggested September may be the key month on whether to slow down rate hikes, the stock market reacted to the upside. However, Mester also said 75 bps raises are still on the table if the data points to more inflation on the horizon.
Also, as Swole mentioned, Powell being clear and certain about policy going forward could fuel confidence in the Fed and their abilities to fight inflation, which could in turn fuel more rallies.
Bonds drive equities. Why? Because the more expensive debt gets, the less equity a company has. The less equity a company has, the lower the stock price (very simple explanation but it’s 11 PM and I have work tomorrow leave me alone).
Monitoring volatility in both the Bond and Equity market could give you more indicators as to where stocks will move in the short-term. Here, you can see the MOVE, the VIX of the Bond market, compared to SPX. Usually, they are inversely correlated, much like the VIX and SPX. H2 of 2021 saw a bearish divergence when the MOVE and SPX started moving in the same direction. This started roughly around the time the Fed started becoming hawkish and mentioning Tapering, QT, and Rate Hikes (November-December). The Bond market, or smart money, is useful to follow alongside equities.
Credit spreads are also useful to follow as they mark risk-on/risk-off environments.
Here, you can see US High Yield spreads and their correlation to the VIX. The short version of why they’re correlated is roughly the same reason as to why the Bond Market drives the stock market. The higher the spread, the more expensive the borrowing cost for the company, which usually indicates more risk (need higher yields to incentivize investors to take on more risk).
BBB US Corporate Spreads Vs VIX
US Corporate Spreads Vs VIX
Peak Inflation, as mentioned previously, could also lead to rallies in the Bond markets, driving yields lower and fueling stock market rallies.
U-Mich Consumer Sentiment wasn’t great. It’s usually a leading indicator of the overall economy, and while the stock market doesn’t equal the economy, you wouldn’t be wrong in saying investors are overly cautious of any macro news pointing to shittier times to come. Consumer spending is a big portion of GDP and high Consumer Sentiment is needed in order to have high consumer spending (Retail Sales numbers coming out next Tuesday btw).
Firstly, I would love to see the 10-Yr stay below 3%, like you mentioned. That could bump investors’ confidence to enter the markets again, bringing in more cash from the sidelines into stocks.
What I would also love to see, in terms of a short-term bounce, is ARKK get above it’s historical resistance of around $50 and close above in order to convincingly say that risk-on is back again in the short-term.
Last thing I would love to see is the Dollar start showing signs of weakness. Currently, it’s still making 20-year highs, which is not good for stocks. Why? Because a strong dollar leads to less profits coming in from abroad for international companies.
Scalpy mentioned the dollar being strong. Looking at DXY, we can see a bearish divergence forming on the daily. We saw the first sign of a roll over with a red day. The RSI is showing massive divergence from the dollar. Once people start to re-enter the market will all the cash on the sidelines, we should see big impulsive rallies.
Looking at what smart money is doing, we can also see a bullish divergence. SPY goes lower, yet the amount of money exiting is not going lower. This is a sign that a bottom/ rally is likely going to happen.
I touched on VIX before, but looking at it again, there is a bearish divergence on it with RSI going lower throughout May although for a bit it was going higher. Also the momentum on the VIX is basically nonexistent at this point and is about to roll over. Of course, like I mentioned, VIX was unable to make higher highs recently and was getting rejected before reaching the 35 level.
Looking at the breath similar to Scalpy’s, we can see that once we reach these levels of oversold, we usually get a bottom. I marked the times where the breath was at the level we see right now. Each has marked a local bottom. Of course, it doesn’t show a bottom, but it does show that a rally is most likely coming. Maybe this rally is already over, but I don’t think so.
Looking at the fib retracement from the top at 430 to here, we can see that we retraced back to the 0.382 level and failing to break above. The hourly does show an ascending triangle pattern which is bullish, but whether we’ll actually break above will be seen. If we break above, I think we get rejected at 406 as that’s where massive sell walls are currently. This also corresponds pretty well with the 0.5 retracement. I think we will see a pullback back to the gap fill range which would be around 395 level, but whether we actually gap fill or bounce off that and make a right shoulder for the inverse h&s remains to be seen.
Overall, I think we do see a rally to 430 ish and see big resistances at 406 and 415, possibly points where we pull back to derisk on calls and enter on a good dip. Personally, I don’t think we will go on a bull market rally to new ATH right now. I think that happens once the fed becomes more dovish and inflation shows signs of peaking. This will probably be within 3 months, so until then, I expect choppy markets and huge swings. I don’t think we hit a new low because I think that fear has peaked, but that’s what I thought in March so we’ll see. I’m not bullish enough to think we go to 450-460, but I’m expecting a strong rally which can turn very impulsive if shorts decide to cover. I think Monday will give us a good idea of if markets want to have an impulsive rally up or decide that it’s still bear season and it’s time to drill for oil.
