5/26: Market Recap, Outlook, and Trading Plan
Today's Recap
This week, we experienced a nice 130-point decline, creating a unique short opportunity. The market overreacted, but since October, dips have been consistently bought. We repeatedly held 4123-16, climbed back to 4165-75, and then experienced a tradeable dip to open today's session. In this newsletter, we will discuss the setup that got us long for today's rally, the reason for it, and provide the workable trade plan for today.
Debt Ceiling Crisis
With the debt ceiling as the main risk, Friday is coming up before a 3-day weekend. We'll trade sparingly or perhaps not at all tomorrow as a result (holding our runner). Our objective will be to preserve this week's profit rather than increase it.
Bond Yield Rates
No significant updates on bond yield rates today.
Key Structures
The blue triangle: Over the course of ten days, we constructed a classic triangle pattern that, on May 17, broke out, setting us up for a squeeze of more than 100 points. We roughly received the backtest yesterday and then rallied in response to it. Above that triangle, the breakout from last week is still in effect, while below it, the breakout failed. The upside is still present right now. That support is at 4118 right now.
The yellow rising channel: Yesterday, we dissected it; today, we backtested it. Right now, there is 4175 resistance. Reclaiming it is extremely bullish and strong proof that a bottom has been formed (once inside it, the uptrend is reinstated).
White downtrend channel: 4205 is currently the resistance, and this is a magnet.
The Yellow Uptrend Channel
Currently consolidating under this major zone and accepting it, we are not yet back in this range.
Support Levels
4155-58, 4147 (major), 4134-38 (major), 4118-23, 4105 (major), 4099, 4085, 4074-76 (major), 4061, 4052 (major), 4040, 4020-25 (major), 4013, 4000-4005 (major), 3980 (major).
Resistance Levels
4167, 4172-75 (major), 4181, 4191-93 (major), 4200-05 (major), 4215, 4222-25 (major), 4238, 4242 (major), 4250, 4256, 4270-75 (major).
Trading Plan
We view the range 4175–4135 as a new chop zone; trade with caution in it as the action will be chaotic and tactical. To add longs, we will be keeping an eye out for failed breakdowns. One could bid on 4147 or wait for a flush to 4134-38 before reclaiming it in an effort to try and scalp some points in this range. 4147 is the first strong support down. In the same manner as yesterday, 4134-38 will need to provide support for tomorrow; alternatively, one may choose to wait for a failed breakdown. Only the levels above marked as major are the places we'd try knife catches if that doesn't work
Wrap Up
Many traders choose to take the Friday before a three-day weekend off. We won't put this week's profits in danger; instead, we'll be concerned with protecting our profits. But now, the chop zone is 4135–4175. Our general inclination is to fill this out (ideally, bulls want to hold above that 4147 zone), then try the push higher to 4190+. The warning shot for the bear case is 4135 fail.
Disclosure: This is not financial advice and is for informational purposes only. Please consult a professional financial advisor before making any investment decisions.
This week, we experienced a nice 130-point decline, creating a unique short opportunity. The market overreacted, but since October, dips have been consistently bought. We repeatedly held 4123-16, climbed back to 4165-75, and then experienced a tradeable dip to open today's session. In this newsletter, we will discuss the setup that got us long for today's rally, the reason for it, and provide the workable trade plan for today.
Debt Ceiling Crisis
With the debt ceiling as the main risk, Friday is coming up before a 3-day weekend. We'll trade sparingly or perhaps not at all tomorrow as a result (holding our runner). Our objective will be to preserve this week's profit rather than increase it.
Bond Yield Rates
No significant updates on bond yield rates today.
Key Structures
The blue triangle: Over the course of ten days, we constructed a classic triangle pattern that, on May 17, broke out, setting us up for a squeeze of more than 100 points. We roughly received the backtest yesterday and then rallied in response to it. Above that triangle, the breakout from last week is still in effect, while below it, the breakout failed. The upside is still present right now. That support is at 4118 right now.
The yellow rising channel: Yesterday, we dissected it; today, we backtested it. Right now, there is 4175 resistance. Reclaiming it is extremely bullish and strong proof that a bottom has been formed (once inside it, the uptrend is reinstated).
White downtrend channel: 4205 is currently the resistance, and this is a magnet.
The Yellow Uptrend Channel
Currently consolidating under this major zone and accepting it, we are not yet back in this range.
Support Levels
4155-58, 4147 (major), 4134-38 (major), 4118-23, 4105 (major), 4099, 4085, 4074-76 (major), 4061, 4052 (major), 4040, 4020-25 (major), 4013, 4000-4005 (major), 3980 (major).
Resistance Levels
4167, 4172-75 (major), 4181, 4191-93 (major), 4200-05 (major), 4215, 4222-25 (major), 4238, 4242 (major), 4250, 4256, 4270-75 (major).
Trading Plan
We view the range 4175–4135 as a new chop zone; trade with caution in it as the action will be chaotic and tactical. To add longs, we will be keeping an eye out for failed breakdowns. One could bid on 4147 or wait for a flush to 4134-38 before reclaiming it in an effort to try and scalp some points in this range. 4147 is the first strong support down. In the same manner as yesterday, 4134-38 will need to provide support for tomorrow; alternatively, one may choose to wait for a failed breakdown. Only the levels above marked as major are the places we'd try knife catches if that doesn't work
Wrap Up
Many traders choose to take the Friday before a three-day weekend off. We won't put this week's profits in danger; instead, we'll be concerned with protecting our profits. But now, the chop zone is 4135–4175. Our general inclination is to fill this out (ideally, bulls want to hold above that 4147 zone), then try the push higher to 4190+. The warning shot for the bear case is 4135 fail.
Disclosure: This is not financial advice and is for informational purposes only. Please consult a professional financial advisor before making any investment decisions.
