Short post today, maybe I’ll add some additional content later. Important price action this week. First, let’s consider SPX daily chart. On Wednesday price gapped up to just below prior all-time-high (ATH) and spent the day rallying and closing near the high. Any large candle on a chart should be treated as a clue to the intention of buyers (green candle) or sellers (red candle). In this instance we should’ve assumed buyer’s were in control following Wednesday’s close and used the 50%-61.8% Fib support zone of that candle as good location for a long trade in the future (often the following day). The low on Thursday remained above the 5281-87 Fib support zone but Friday’s 5283 low found support in the Fib zone and price closed at 5305 as a Doji candle with a long lower wick. That type of candle often reflects a bullish reversal when price had been falling however, following a price advance, it can also be considered a sign of price exhaustion. Regardless of the weekend interpretation of Friday’s candle the important price levels are clear. Above Friday’s low buyer’s remain in charge. More importantly, above 5260, buyer’s remain in control. For the coming week, sideways price action is bullish and a pullback to the 5260 area (that area also contains last week’s HB) would still be considered bullish as long as price doesn’t find acceptance below 5260. Dropping below 5260 would be extremely bearish because a failed breakout above the prior ATH is all kinds of bearish!!! What if price dropped below 5260 only to recover back above? That would be a failed failed-breakout which would be a win for the bull’s! The only way seller’s can take control here is (1) take out Friday’s low and find acceptance below the 5281-87 Fib support zone and (2) continue down below 5260!
I shorted GOOGL on Wednesday by buying Puts and let’s see why that was such a bad trade! This trade falls into the ‘I should’ve known better‘ category! Wednesday’s high was in the Fib resistance zone of the gap and crap day of 4/26. That’s good location for a short right? With no other context, yes. Let’s look at the days leading up to my failed attempt at a short. #2 on the chart below was clearly a very strong demand day. So strong in fact that the following day didn’t even retrace to the Fib support zone of candle #2. Buyer’s wanted to own the stock and didn’t even care about waiting for the retrace back to where the algos were hanging out waiting to buy! #3 was the day I shorted near the high and that’s where a little price action context would’ve saved me some money! By the close of #3 there was nothing bearish about the price action regardless if there were some algo resting orders to back up my short trade. When there are motivated participants in the market, whether buyers or sellers, the algo levels will get run over quickly. Take that as a big clue as to the likely future direction of the price! Why was I shorting a stock that was in high demand? Oops! By the way, is it surprising that price also exceeded the 4/26 high on Friday? I don’t think so, what do you think?
Can we use a chart like GOOGL to add context to the index charts? It’s a large, widely-held stock, so I think so. The index charts are very extended to the upside but price can continue higher without a large pullback. IF there’s to be a significant pullback I would expect it to occur over the next 2 weeks because of the 5 week cycle into the June quarterly OpEx (option’s expiry). The 2-3 week’s preceding each OpEx can have bullish dealer flows in a rising market unless price has taken out important technical support levels. So if SPX can’t hold above 5260 and if GOOGL can’t maintain it’s breakout then price could see a big move down. Absent that, the sky’s the limit!
5/20/24 Update: GOOGL is up another 1.24% again today. Not a big surprise based on the analysis above. If I had been stubborn and held onto those Puts after the price action clearly disregarded any potential bearish setup last week my loss would’ve been much worse today. I always trade with a stop based on the chart and when a setup fails or triggers that stop I exit a trade! No exceptions!
Questions or comments, leave them down below or at my @VegaOptions account on X.