SPY Chart
The S&P put in a final stop-run this week. We’ve been keying off the 454-457 zone and expecting some selling to come back in…
But it’s rarely a “clean” level to work with.
Instead, we see a gap up above the level on news, finishing at the high of day…
Only to see a nasty rug pull and reset of some of the short term excesses for the next three days.
We now have a clear retest level at 448 to work with. This is key on our Roadmap…
Along with the swing Anchored Volume Weighted Average Price (AVWAP) from the recent lows and the 20/50 EMA coming into play.
Many eyeballs will be on the same levels where market participants are using multiple indicators to reach the same conclusion.
It’s reasonable to expect buying interest to show up as we head down into that. That would be a small pullback that could reset it enough as the market makes an attempt to move back to all-time highs.
Can’t believe I’m saying “all-time highs” given the macro backdrop…
But consider that we just had a hard, multi-month correction that shook a ton of participants out of their positions.
I’m not expecting some kind of straight sho tbull run like in 2013, 2017, or 2021… but we should not count out possible continued upside aggression. There’s plenty of capital on the sidelines that feels “stupid” for getting shook out of the market — and that capital’s looking for some way to easily reenter the market.
Of course, we have heightened headline risk. But that risk has continued to drop, in terms of some of the narratives that have controlled the market. The war in Ukraine seems to be a little more predictable, and financial markets are stabilizing. Pull up a chart of the Ruble to see the best example of that.
And then you’ve got the Fed, and their rates signaling.
It looks like another 50bp hike in May, and if Jerome Powell starts jawboning again, we could see a move lower as increased uncertainty just pulls the bid out of the market.
For now, our Roadmap’s showing us some very clean levels where buyers will most likely be. Unless breadth significantly deteriorates, the “worst case” for this market would be more of a choppy range, and possibly a pull down to 435-437.
QQQ Chart
The Nasdaq is behaving very well in regards to our levels.
It found key resistance into the volume shelf at 369-371. On Friday, it found buyers and short covers into the 357-359 zone.
Just underneath that is the same kind of mechanic we see in the S&P: swing AVWAP, 20/50 EMA, and a sneaky low volume node (LVN) that should bring in buyers… at least on the first attempt.
This is where the risk of market cap weighted indices really come into play. If AAPL breaks to new 52-week highs and goes on a monster run, it will pull the market higher regardless of the geopolitical backdrop.
If the Nasdaq makes a new higher high, then we’ve got a local LVN at 376-377 that lines up with the prior support leves from December.
Choppy action, but with better liquidity and lower daily range, would be the most structurally bullish thing to happen here. That’ll indicate the market’s normalizing to whatever “normal” is now, and it can easily lead to a grind higher as we head into the summer.
IWM Chart
That “big kahuna” level came into play last week.
We had a strong gap up into that level (210-212). While it looked like we’d see some follow-through and bust through it, we instead had a hard crack back down. Monday’s gap was filled..
The 210-212 zone is still a huge one. A move above and a hold would create self-fulfilling price discovery — More investors might flow in as they start to think the worst is over. At that point, maybe we can think about 217-218.
On the lower end is that choppy range that was knocked out for the entire year. (Yes, it’s April already.)
Odds are that downside action will see some liquidity supply come out into that range.
That means unless something truly comes out of left field, we won’t have a swift cascade to the downside like we did at the start of the year.
Keep in mind that saying the market “can’t have a hard selloff” are the famous last words of many broke traders, so make sure to have a plan if things start to get loose again.
VIX/VWIX
Many will think the VIX sold off because the market rallied, but I think it’s the other way around.
The VIX dropped because we had better clarity regarding the Fed and the European war.
That led to what’s know as a “vanna rally,” — Market makers had to bid up stocks to adjust for the changes in their exposure as options premia tanked.
Now, we’re back at sub-20. But remember, the VIX doesn’t get “oversold” like stocks do.
Instead, look for a few weeks of consolidation. That’ll be the best time to lay on some hedges. This will most likely come after April options expiration.
That’s all for this week’s Market Primer. If you’d like to learn the secrets behind the Roadmap I used to analyze the 4 indices above..
Watch this free Roadmap presentation now.
