The Long and The Short

Story of the Week

Bulls have made substantial progress across many parts of the market.

This is the most aligned the bull setup has been in over a year.

This ideal reversal set is now running into the minefield of megacap tech earnings with the theater of the debt ceiling in the background.

This will be an excellent test of technicals vs. near-term obvious walls of worry.

Usually, technicals win.



Game Plan

Replaying the playbook from last week given the overall market structure remains the same with incremental progress by the bulls into the firing range that is FANG earnings season.

One thing to add this week is SHOP and Z are my favorite spec picks for large moves as they have the best combination of technical alignment and high short interest. I’ll be looking to buy pullbacks on both with longer-dated calls.

Also, semiconductors are in a unique spot here if we see rotation as they play well with tech and are slightly inflationary, so the sector fits in sweet spot for many strategies if we see tech rotation.

I like SOXL shares or SMH calls.

Same thing goes for small caps and biotech. IWM, TNA, XBI, LABU.

Last point of order… understand your typical risk per trade. The common allocations are 2, 5, or 10% NLV risk per trade.

So, if you have a $100,000 account and see a normal conservative setup then the risk would be (typically) 2%, or $2,000 risk on that trade.

Decide what your parameters are and stick to them. Risk management is step one!

Lastly, this week is fraught with risk from megacap earnings to various major news drops and next week sees Fed and ECB rate decisions.

While the markets have never looked better to have a legitimate bottom in play, do not forget the risk this week and next and do not get complacent even if markets break out.

The rest of this is the same as last week.

The plan for the next week remains straight forward.

It is the quintessential “if this, then that” dynamic.

IF the SPY holds $390, THEN we look for a battle higher at $400.

IF the SPY holds $400, THEN we look for a battle higher at $410.

IF the SPY loses $380 on a weekly close, THEN we look for a max short situation.

We must maintain an “if this, then that” mentality because despite the progress and bottoming signals in play, the structure on a weekly timeframe is still a pattern of lower lows and lower highs and the illiquidity of the market is subject to flushes.

With that risk understood if we focus on the progress bulls have made it is substantial. This is evident in the bottom of the barrel things like the High Beta Shit Index, the dollar under 103, bonds trying to make a tradable low.

The yearly trendline that has held SPY down likely is tested again for the fourth time.

In my estimation this time it should break as forth tests of trendlines are the most vulnerable, but more importantly, because this test (unlike the previous three) is coming with bonds trading stable, dollar breaking short, and the bottom of the barrel assets already having very long-term bases under them.

The internals confirm this dynamic which is a nice bonus.

Mechanically, there are a lot of shorts in the market, and they can be sequentially stopped up on a march higher, so the fuel is there for higher even if people are skeptical of the rally, the number of short positions is enough to power it higher.

I think avoiding or outright shorting the defensive parts of the market like XLP, XLV, XLU is in play as those are saturated sectors and not in favor in a short squeeze.

The $PCALL remains high and that can act as the fuse for a continued short squeeze… $PCALL alone is not enough, but as long as price continues to inch higher and hold pullbacks that will encourage the shorts to look for the exits.

The High Beta Shit Index has its first positive TrendOsc cross in over a year! To me, this implies the ability to have a massive short squeeze in the bottom of the barrel stocks is high, we want to find the one that fits our style, Z and SHOP look great.

Remember the dynamics of short squeezes are all or nothing, meaning the day will either try and trend on a 5min 21ema OR it will be a chop fest/consolidation. This is the best chance the bulls have to run for a while, bears still control $400 but they are under more fire than they have been since this started.

The biggest enemy for bears will be other turncoat bears, so continuing to march forward this week is necessary for bulls.

Know your levels and plan on what to do above and below those key SPY prints.

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