This week, Sam Shames, VP of Options at Simpler Trading, shares his macro review on the markets post-Fed meeting, what the technicals indicate as the path of least resistance, and his game plan for the week.
Sam Shames’ detailed report walks you through every market including indices, sectors, stocks, and commodities to give you a better idea of where the markets are going in the week ahead. Below is a preview of Sam’s analysis included in his This Week in the Markets report.
Story of the Week
The final Fed meeting of 2022 is in the books, and Powell continues to signal a more hawkish stance than the market wants.
This is likely to continue until we start to see a material uptick, likely next year, in unemployment. It is very difficult to squash inflation at 7%+ with a funds rate below inflation rate. It is also difficult to squash inflation with a tight and strong labor market.
Listening to the speech, I did not hear any hints of a reversal, so all this pivot talk makes no sense for now and is likely wishful thinking by stuck longs.
Simply put, there will be a pivot, but not now and likely from lower prices. In the here and now a very dangerous technical picture is facing the bulls.
If we focus on SPY, now we can see three countertrend rallies all of which ended with lower highs. The reason the number three is important is because bear markets tend to have three countertrend rallies before the “cathartic puke” phase.
As Jeremy Grantham would say the “Grand Finale” is closer now than before.
The technicals are not good here and this week starts with almost everything giving significant sell signals on multiple timeframes all at once.
Probabilities favor the bears here, but as always, we must understand the other side of risk… how can the bulls get out of this box?
Bulls are at a level where they must short squeeze or die… this is not the expectation as the probabilities highly favor new lows, but it’s the only way out for bulls… it will be very difficult to grind here, so they must find a catalyst and blast.
Again, this is the much lower probability. The much higher probability is that the weight of the technical sell signals takes the market lower.
This will likely be led by megacap tech stocks as things like AMZN, TSLA, GOOGL, and AAPL all collectively have large air pockets under support and squeezes.
There are some straight up crash setups out there with huge open-air pockets under price, a defined bull-trap high with lots of distribution over past month, multiday squeezes under price, and HiLo sells on the most important products.
Put calendars attractive with VIX relatively closer to 20 (buy) than 35 (sell zone). This would be the last spot for the bulls to create a large short squeeze.
This is the lower probability trade as bulls would have to overwhelm all the active sell signals, but remember “if this, then that” and that is the only way out of the box for the bulls is to spike it.
Go into next week expecting lower prices and force the bulls to prove it.
Swing trading short makes a lot of sense given the setups, swing trading long does not make sense.
Daytrading long/short with a swing trade short backdrop makes the most sense.
You’ll notice that Sam refers to his proprietary premium indicators, the TrendOscillator Pro (TrendOsc) and HiLo Pro. For more information on Sam’s true momentum indicators and how to apply them to your trading, visit the link here or reach out to our support staff at [email protected]