Hi there! Steve Place here with your Market Primer for the first full week of February.
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Below is the written version of today’s Market Primer:
SPY stock image
Last week, I sent out a video explaining how the early short was the wrong short…
And we saw that this past week.
The obvious level for the S&P was around 449, and we just blasted through it before we saw a clean gap down on Facebook earnings.
That’s how large these companies are and how they can move the markets. It took a nasty haircut for the large-cap indexes to have a hard reversal.
Friday was cleaned up with AMZN earnings and a little bit more range.
In terms of narratives, this is where I think the risk is to the upside for equities. Mega cap tech earnings are out of the way, and the Fed news is now projected pretty well over the next few months.
Meanwhile, the Ukraine thing seems like a psyop and could just wither away without any material effect on the stock market.
So what does that leave us with? A news vacuum?
Those aren’t particularly bearish. Markets like to sell off when new sources of uncertainty pop up in the market…
And markets bottom when that uncertainty becomes a certainty.
Just a bit of an auction lower will tell us if that’s all to expect in the near term. The swing AVWAP from the Jan lows is coming into play with a volume shelf and key internal pivot — right around 441.
If that level holds and we find buyers, a rotation higher and an attempt to test at least 450 is on deck.
If it fails, we might work down to retest the lows.
Keep in mind the obvious patterns! The head and shoulders — if formed — will cause a lot of people to start screaming about big topping patterns. Don’t be shocked if this fails and we see a hard rally off those lows.
QQQ stock image
The Nasdaq 100 is behaving a bit better in terms of technicals.
The obvious levels — the swing Anchored Volume Weighted Average Price (AVWAP) from highs and the key Low-Volume Node (LVN) — held, although the nasty move on FB earnings helped.
It feels like mega-cap tech and the semiconductor space will be in the QQQ driver’s seat.
Map those out and you’ll find some key turning points that will offer short-term traders a distinct edge in the markets.
As for right now, this feels like a brink level. We haven’t seen much liquidity in the 342-357 range, so we don’t have a ton of levels to work with…
And that’s why I’m suggesting going through names like AAPL, FB, and MSFT to get a feel for price action on the index.
If this local low holds similar to the S&P, a rotation up and a break above the pivot highs is a distinct possibility. Key off the two LVNs at 377 and 383.
IWM stock image
I’m surprised we didn’t see as much of a retracement in the Russell 2000…
That said, it has been the weakest of the bunch. We aren’t entitled to see everything rally in lockstep.
One green shoot here is that the market managed to clear back above the swing AVWAP from the March lows…
But even that isn’t a particularly compelling argument.
It’s OK to be unclear about where this sucker is headed! Odds are we just need more information before we can have a better opinion. The Russell has a ton of moving parts right now in biotech, industrials, and regional banks.
If we do rally, watch for that test of the swing AVWAP from last year’s high, which will line up with the prior support.
My gut here is that if we do come into that level, it will be too obvious — so look up for one squeeze higher before you consider shorts.
VIX stock image
Even with the tech fireworks and the Fed voodoo, spot VIX held sub 25 to end the week.
Everyone is still hedged up, which can create a floor in the markets. I have a feeling that in the next few weeks — as we come into a news vacuum — you’ll be able to get better prices on put options as the premium continues to decay.
That’s all for this week’s Market Primer.
If you’d like to learn about the roadmap I used to analyze each index…
