It feels as if we’re seeing a more stable market.
Liquidity is returning, intraday ranges are compressing, and the market is seeing clean responses to Roadmap levels.
Combine that with the recent breadth thrust, and I think this market is setting up for higher prices.
That doesn’t mean it’ll be a straight shot or that we can’t see more scary price action…
But we can’t ignore the market’s change in character.
The best way to test whether the market’s turning around is through price action.
Right now, the market is holding the 20 EMA, but one push lower would take us to 402 - 405. That would line up with a key low volume node (LVN) as well as the Anchored Volume Weighted Average Prices (AVWAPs) from the recent lows and the May swing highs.
The longer we hold above this level, the higher the odds we break above the recent highs. Those highs line up with the late March AVWAP and the LVN we called out last week.
Above that, we can expect the 422 high volume node (HVN) to be a magnet, and then the next big resistance zone is 425-428.
If we get to that resistance zone quickly, I’d focus on the lower end of that zone.
QQQ has a similar structure as the S&P 500 right now.
We have our big level lower — the swing AVWAP from the recent lows and the May highs.
Just above Thursday’s high is still significant to the Nasdaq. I could argue it matters more because it lines up with the March 2020 AVWAP’s underside and the March lows.
If tech can clear that — and that’s a tough level to crack on the first attempt — we could see a push back to 326.
From there, we can knock out a trading range, retest 317-320 as support, and make a higher high to 338. That’s a reasonable expectation for a bullish summer rally.
I’ll be a bit lazy here and repost my thoughts from last week:
“The Russell could pull a fast one on us.
See, everyone and their mother will likely key off the 190 level, which is the prior support lows and could be a good re-short level.
The problem is, that level didn’t see a ton of volume… and there’s not enough incentive from owners at that level to bring in sufficient selling.
Instead, we could see the high volume node (HVN) start acting as a magnet. That’s at 197-200 and would line up with the AVWAP from all-time highs.
If we hit the 190 level but don’t have a massive response lower off it, watch out for a second push higher.”
That idea is still in play and would coincide with a broad market continuation to the levels I mentioned in the SPY and QQQ sections.
The Russell’s seen some relative strength. My evidence is how it’s testing the AVWAP from the late March highs, while the SPY and QQQ haven’t tagged it yet.
Again: everyone and their mother is keying off the 190 level, which feels like a trap.
If it holds and we crash… I’ll look like a dope. But I’m listening to what our Trading Roadmap is telling us.
This most recent short-term bottom coincided with a lower high in the VIX.
There just isn’t as much demand for volatility protection, reinforcing my idea that liquidity conditions are improving in both bonds and stocks.
Now, a vanna squeeze could kick off if the VIX heads back towards 20. That could add fuel to the fire on my continuation long idea.
On the other hand, if VIX gets back above 28 and is “sticky,” that’s a warning sign that volatility protection is back in vogue.
The VVIX is still the more interesting chart:
VIX options demand is back to pre-2020 levels. It’s possible enough deleveraging has happened to where we won’t see the same forced sell programs that took out all bid-side liquidity.
We could also see a shift in dealer holdings where their gamma exposure flips, and that helps to create a negative feedback mechanism…
Which helps tighten intraday ranges, volatility, and liquidity.
That’s all for this week’s Market Primer. For more information on the Roadmap I used that pointed out all these key levels: