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This Week in the Markets Analysis

This week, Sam Shames, VP of Options at Simpler Trading, shares his macro review on the markets, analysis of individual indexes, sectors, and stocks, and game plan for the week. Sam works to understand the markets through technical analysis and recognizing the distinct psychology and correlations of each chart.

Sam Shames’ detailed report walks you through every market including indices, sectors, stocks, and commodities in order to give you a better idea of where the markets are going in the week ahead. Below is a preview of just some of the analysis included in Sam’s This Week in the Markets report.

You’ll also 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]

Story of the Week:

Bulls went into last week red hot. The indexes, especially the DIA, were incredibly overbought and extended on intraday timeframes. The sloppy trade from last week resulted in reset of intraday momentum and a cooling off of the excesses from the run.

This may be a positive thing, but we don’t have enough information yet to say
conclusively that it is.

The information that we do have is that the hourly 200 simple moving average (SMA) on SPX held. The hourly 200SMA on HYG also held. AAPL 140 did not hold.

Price enters the new week above the H200, which was severely tested and retested last week, but below the H50 SMA.

The way I see this is that above H50 bulls have momentum and structure. Below H50 but above H200, bulls only have a neutral/sideways structure.

If bonds can pause or even rally soon that will help balance out the problem child of the market which is tech, specifically FANG stocks, which are being destroyed.

Dollar needs to drop > bonds need to pause > tech will stabilize > SPX can rally

If these things do not occur and/or the H200 on SPX breaks the entire setup is invalidated and the market would revert back to the primary modality of bear trend.

INDEXES

DIA remains strongest, IWM second, SPY third, QQQ fourth.

Island reversal in SPX in play, requires a hold of H200 + daily gap support.

3815 and 3915 are two major resistance zones on SPX.

DIA monthly HiLo buy signal in play! Very rare, important signal.

Germany/Europe seeing best signals in over a year. Positive daily TrendOscillator Pro cross.

Highest daily HiLo Pro value in a year. Now facing a wall of resistance ahead but this is as good as the momentum has looked for a long time. Overall skews positive for bulls.

Potential bottoming pattern in play in Chinese stocks. May not last, but in the near term the structure is there with a higher low double bottom. On FXI, there is an island reversal in play, but price needs to hold $23 for this dynamic to continue. Positive bulls.

SECTORS

Inflation Index remains by far the best thing in the market. Monthly hi-comp squeeze in play with weak alignment of structure. Still the best thing on the board – XLE, XLI, XLB.

High Beta Shit Index… subtle clues that it wants to outperform. Would imply large short squeezes in these bottom feeder, high beta tech names (ROKU, PINS, SNAP, SQ, etc.).

No trigger yet, but if it fires, huge moves coming for these stocks.

Metals (XME) will do very well in a falling dollar environment.

If oil finds a rally to $97, that will add more tailwinds to XLE components.

Software remains incredibly weak as rising rates collapse multiples.

FANG Index remains incredibly weak with a monthly chart that is trying to break down.

Quite a few sectors have really shaped up across the board.

FOREX

Dollar best chance for a pause/reversal. Will need to be led by Yen and Aussie. If dollar continues to rally despite the weakness and damage to structure, that is a problem for bears. Dollar needs to drop which will allow for bonds to rally a bit which will help tech.

BONDS

Bonds still not fully buying the equity market bullishness.

HYG is confirming the price action in the indexes. Same dynamic as everything else, needs to hold pullbacks to H50 to remain viable. For now, bulls are in control intraday.

Bond vol double top on weekly and now collapsing, could be precursor to bond rally.

INTERNALS

SKEW new lows imply no fear, which is unusual but must be read as bullish for now.

Starting to see good things in the breadth. Although it’s not straight up like in
July/August, my read on it now is this may be more sustainable as breadth is improving in some places (inflation trades) and falling in other places (tech).

VVIX needs to be monitored as it is now back to the bottom of range where it has
found support before. VIX is also at intermediate support, no trigger long on either.

RANDOM THOUGHTS

A lot of the action is in 0DTE SPX and weekly stock options, which in an illiquid market increases short term movements/spikes. This indicates a lack of conviction, trading.

Markets overall are more illiquid than we know. This dynamic cuts both ways up and down as it’s more difficult to rebalance large books with this low liquidity.

2001 or 2008?

The case for 2001 is a lot of other sectors other than tech are doing just fine.
The case for 2008 is systemic risk is still in play and we haven’t seen the trigger yet.

“Complacency or euphoria will kill you.”

AAPL is the last megacap stock left standing and is now taking fire. Monthly squeeze has heavy bear connotations and implies a test of $107. QQQ and Fang Index already have done that while AAPL is the only one that has not… AAPL is the key to the game.

Powell presser quotes – “Ways to go” … “Premature to think about” … “Commitment to getting this done.” … “Keeping at it” (title of Volker’s book)… Trust him for now.

GAME PLAN

The game plan for the week is simple.

My anchors for the market are
• SPX above H200
• HYG above H200
• AAPL above 140

Above those levels (understanding AAPL is currently under), the market is neutral to neutral-bull above H200 but below H50.

For bulls to introduce momentum back into the equation, they need to get SPX above H50, HYG above H50, and AAPL back above 140.

The week will start right in the middle and the burden of proof is on the bulls to show they can break resistance and hold support.

The dollar and bonds are much more critical this week than last considering the index momentum is gone and new momentum will require some peripheral tailwinds either from lower dollar, lower rates, or ideally both.

Bulls will need to get price back above 3815 quickly (back above H50 + major res zone there) relatively, if they are able to there is a 100-point air pocket to the next major resistance level at 3915. Watch for resistance at the falling H50 on SPX.

Bears will need to hold price below resistance and eventually break the H200 on SPX and HYG. If so, they would reestablish their control of the market and we could see quite a large drop as all of the bulls’ efforts from the previous weeks get washed away.

Daytrading rules in trendless, volatile markets until one side proves they want it more.

Calendar

https://www.forexfactory.com/calendar
• Monday – ECB Lagarde Speaks (Important), FOMC Mester Speaks
• Tuesday – SNB Jordan (Important), AUD Lowe (Important), US Election (Important)
• Wednesday – No major events
• Thursday – US CPI (Very Important), FOMC Mester/George Speak, US Unemployment #
• Friday – GBP GDP (Important), UoM Consumer Sentiment (Important)
• Next Week – US PPI, US Retail Sales, GBP & AUD Policy Minutes (All Important)
_____________________________________________________________________

Historical Tendencies + Weekly Expected Move: +/- 117 SPX Points

• Monday – Bull-
• Tuesday – Neutral-
• Wednesday – Bear-
• Thursday – Neutral
• Friday – Bull-
• Next Week – Neutral-

_____________________________________________________________________

Sectors To Focus

LONG – XLB, XLE, XLF, XLI, XLV, XME, SMH, XLU (?)
SHORT – XLC, XLK, XLY, ARKK, Software
_____________________________________________________________________

Stock Watchlist

LONG – ENERGY – XOM, CVX, EOG, OXY, MPC, DVN, VLO, LNG, CHK, SLB, HAL
MATERIALS – FCX, VALE, BHP, NUE, STLD, RIO, ALB, CF
HEALTHCARE – UNH, VRTX, AMGN, MRK, LLY
FINANCIALS – GS, MET, AFL, PGR
MISC. – GIS, MNST, MCD, SBUX, LULU, NVDA, ON, AMD, NEE
SHORT – ARKK, SNOW, NOW, TTD, PYPL, INTU, Fang Stocks, Software Stocks

Cheers, Sam Shames

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