Chop, Chop, and more Chop. This week feels like we have been sitting in a Chinese Restaurant with a Chef who only knows how to prepare Chop Suey. Volatility has dropped off this week in the market due to the uncertainty and consolidation. This is also in line with our trading ranges decreasing compared to what we saw just a week ago in the indexes. On the daily chart we seem to be wedged into a narrow range between support and resistance. Seeing this move is not surprising given how the market has been trading most of this year. Just as a triathlon athlete may need to take a breather, so does the market.
As we wait patiently for the market to give us some clarification on trend, it is important to remain patient, and only risk capital you are willing to lose when placing trades. After the wild swings and profits we have taken in the past few weeks, it is easy to become overconfident and vere off of your trading plan. You start to find yourself saying “There is no way this trade cannot win,” and in turn you start to overload the boat. When you start to over invest your capital, it is easy to become more emotional as you look at the trade. You may not even realize that the anxiety you feel is because you have bitten off more than you can chew. This can lead you to make decisions without a clear head or view of the chart. For instance, taking a trade off too soon, or leaving the trade on too long when the signals are no longer on the chart. Once you bend one of your trading plan rules, it is very easy to start breaking every rule in your book. You end up willing for the market to work in your favor. So if you start to find yourself anxious to put on a new trade or bending your trading plan, take a second to sit on your hands and evaluate the charts. Remember, not taking a trade is also an action. Even if you have no trades out there to take profits on, you also do not have any trades that could turn into losses. Sometimes the best action is no action. Remain patient, and let the charts give you a clear sense of direction before jumping back in.
John — While the markets continue to be choppy, volatile and unpredictable, the path of least resistance has been to the upside. On the SPY, the key level continues to be the VooDoo fire line at 265.90. We pushed through it twice this week to the upside, but couldn’t hold above that level into the close. That said, the prior two Friday’s have seen a waterfall decline into the close. For this Friday, we ended up down only 0.24%, which is a win for the bulls. In the short term I’m still looking for the W bottom to continue to form and push it’s way to the upside. On the SPY, if we can reach 272.75, I’d look to generally exit longs and focus on the short side. Finally, my favorite trades continue to be long straddles and strangles that benefit from volatility, period, whether it is up or down.
Taylor — Building upon last weeks momentum, altcoins continued make significant gains as Ethereum’s (ETH) relative strength provides support to the market. We’ve seen some great setups this week on NCASH, ADA, KMD, NEO, and more. We expect to see the altcoin trend continue.
Bitcoin (BTC) started the week off with a dip below $7k before pushing up over $1,000 in under an hour Thursday morning. The swift move up on the 12th was triggered by squeezing out the shorts after [BTCUSD Shorts] hit an all time high this week.
Other Crypto News
- The crypto market this week has seen an increase in over $75b to the overall market cap.
- Well-known investor families like the Rockefellers, Soros, and Rothschilds appear to be prepping to place some bigger bets on the crypto market.
- Bittrex, one of the largest crypto exchanges, reopens new user registration
Bruce — We are once again at a critical point on the SPX. We are having trouble getting over the 2680 – 2700 range. We could fail here and retest lows, but I think with a little luck and no geopolitical events, we break through and go higher on stronger earnings over the next several weeks. As has been the case lately, we have to use a lot of caution here as the market is still vulnerable. Trade small size and be nimble.
Carolyn — Although we had a buy signal in the SPX against the time and price work early April, I’m not yet convinced that this is a major low. At the moment we are currently in a buy mode, but I have to watch for possible failure into my next immediate time window for a high to develop. I’m also watching for that due to the fact that we are currently below the 50 simple moving average and that it may offer resistance to the recent rally. So I guess I have to consider myself a cautious bull at current levels. I’m having my traders ratchet up stops on any longs!
Henry — There were a few comments in the room today about how frustrating the current market environment has been, and I think it really goes back to one of the key themes I’ve been covering in the nightly videos. You’re either trading this directionally where it can be a little tricky, or you’ve adopted more of a spread based strategy and that’s going to be more forgiving. I grew up directionally, but as I’ve added flys and ratio spreads into my work it’s made this type of trading a little easier to work with. Next week could bring more of the same as we enter monthly expiration, and of course keep earnings in mind. I think there is still a potential there for several of the big beta names to find a bid among the chop.
Danielle — The S&Ps have been stuck between the 200 simple moving average as support and the 34 exponential moving average as resistance. Every day, I feel like it can still go either way. Yesterday, the S&Ps finally broke through their 21 EMA to the upside, which was a good sign for the bulls, but it failed at the 2675 level. There is still a lot of resistance overhead, via both the moving averages as well as symmetry. Next week is expiration. I look for this violent chop to continue. Primarily, I am trading this via intraday futures, with only a couple key swing options plays on. I have been stalking various tickers for runs into earnings. Right now I’m long MSFT, INTC, GD and RTN for bullish runs into earnings. These are very conservative swing longs. A break above the 50 SMA on the daily of the S&Ps would have me more bullish to the long side. A break below the 200 SMA, and I will abandon longs until further notice.
Trade of the Week Update
John Carter says:
See the original setup HERE
Expert: John Carter
Setup: Setup on SPY
Update from John: