My Weekly Watchlist

Hello, Volatility?

This week, we have multiple high-volatility scenarios happening. Specifically, the market is waiting on inflation data and then the most important part, the Fed’s reaction to it. CPI data was released this morning, PPI will be released tomorrow, and then the big one: the FOMC meeting on Wednesday. There is also a witching expiration this week, which can make for some weird moves in and of itself.

Going into all of this this, the Nasdaq is and has been extended at 3 ATR (average true range), and the put/call ratio is at extreme lows, meaning everyone is long. It’s pretty rare that 3 ATR is reached, and when it is, especially combined with a low put/call, that almost always means that ticker needs to come back down to the mean. In the NDX, that is going to be between 14,200-14,500, which would equate to a pullback of about 300-650 points or more at the current price of 14,867. 

Now, you’d think that all of these events would mean that the market could make some big moves. But yet…the VIX, as of this writing, it’s below 15, and back to levels not seen since January of 2020!

All of that being said, that doesn’t mean it can’t go higher, especially after a quick pullback.

This is the kind of market in which it can, in fact, keep going higher in a blow-off top type of fashion. Remember what trading was like in 2019-2020? Every day, it seemed like it was ‘impossible’ for the market to keep going higher, yet it did. Over, and over, and over again. 

It keeps going higher because we keep breaking critical resistance zones, like breaking through the August highs in the SPX yesterday. At each one of these zones, people who thought the market would fail are proven wrong again, and the fear of missing out overtakes rational risk, causing traders to buy at extended zones. This keeps upside pressure on the markets.

Euphoria is Worse than Fear

Now, this doesn’t mean getting euphoric or going crazy with risk. When the market continues going higher like this, traders start to feel like it can never go down. The absolute worst thing you can do after making good money the first half of the year is begin to feel like you’re a genius and start throwing on unacceptable risk on your account. While the nice steady trend is much easily to trade, don’t forget, that of course, the market can, and will, go down again. I welcome the pullback so I can buy it, by the way!

But I have been waiting for a pullback for quite a while, and it’s not coming, so therefore, I’m continuing to follow the trend. And that trend, my friends, is up!

That doesn’t mean I’m maxing out my risk parameters up here. Generally, I use a 0.05%-10% risk on my account per trade in the options market. During low VIX environments, I will generally use around 5%-10% of my account on a position, only using max risk on a Five Star setup. I haven’t done this in over a year and a half with current market conditions. I have been risking around 1%-2.5% per trade during this market but with caution at these levels. That means taking quick stops if trades don’t work and the market starts falling apart! This works for me in this kind of market environment.

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Identifying Trade Setups

As such, I’m continuing to trade upside setups and guess what? I have a lot of them right now. The squeeze is my favorite directional setup. It’s a moment in time when we have energy building up that is going to break out. In this case, many of these tickers are already breaking out and on their way to the next leg higher.

We have squeezes in:

  • Microsoft (MSFT)
  • Broadcom (AVGO)
  • Nvidia (NVDA)
  • Advanced Micro Devices (AMD)
  • Salesforce (CRM)
  • Shopify (SHOP)
  • Cisco (CSCO)
  • TJMaxx (TJX)
  • Fortinet (FTNT)

…and more!

I stopped by TraderTVLIVE yesterday to discuss all of these and more. Check out the link to the video below!

Want to learn more? Follow me on Twitter @traderDanielle.

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