Sunday Setups - 1/20

Happy Sunday Monday,

To make your week more enjoyable, we’ve prepared some Fresh Trade Ideas for you. They go nicely with a freshly squeezed glass of lemonade!

What is the Sunday Setup?

It’s a short review of the market, trades from last week and a detailed overview of trade ideas for this week. Build your trading strategy for the week in the time it takes to finish a glass of lemonade.

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Alright, is that sugar kicking in? Let’s find some edge!

Market Review

Before we dive in to the individual trades that I am looking to take, I want to do a quick review of where the markets stand. Understanding the overall market trend will help guide us with how we approach these trades and position size.

The SPX filled the election gap with additional selling Monday. Buyers stepped in and the put/call ratio reached 1 and closed at 0.8, putting further pressure on anyone who was short. Then, inflation came in cooler than expected, which fueled a big rally, taking the S&P up above its daily 21 EMA. It closed the week strong, above the EMAs, and there is now a squeeze forming on the daily chart of the /ES futures.

So, is the selling over? Do we just march on to new all time highs?

Well, like we talked about last week, the weekly chart remains bullish So, the prevailing trend is still bullish. The daily chart is now correcting from bearish to bullish, as price is above the 21 EMA and the 8 has crossed back above the 21 - a close above the 21 EMA often aligns with a change in short-term market sentiment. However, for the SPX to truly confirm a shift, it must break above the January 6 high of $6,021.04. Doing so would end the recent bearish pattern of lower highs and lower lows, paving the way for a move toward new all-time highs.

As things stand right now, we have to give favor to the bulls.

The presidential inauguration is today, which could lead to some short term strength, and as of 10am eastern today, the /ES has breached the high from 1/6. So, the pattern of lower highs and lower lows might be coming to an end.

If the inauguration is a sell the news event, I will be looking to buy near the 21 and 34 EMAs.

The biggest signals I’m watching this week will be the put/call ratio and the newly formed daily squeeze on the /ES.

See red dots in chart below for the squeeze:

Given the structure of the weekly chart on the /ES and the shifting structure of the daily chart on the /ES, I’ll be looking for the daily squeeze to fire long and take us into new all time highs. This could happen relatively quickly, but I think it makes sense that we consolidate a bit more before marching higher.

Finally, the 10 day simple moving average of the put/call ratio still remains at relatively low levels. It has started to rise, which is bullish, but ideally, it would continue higher (closer to 0.8), which would give further support to the long side of the market. I mention 0.8 because this is a relative high given recent history. You can see on 9/10/24 the market confirmed a change in trend and went higher.

We had some really good wins this past week, and there are several more setups I really like in this market. Opportunity awaits!

Ok, here’s what I’m trading this week.

This week’s Trade Ideas

1.) RDDT  Long

Reasoning:

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