Sunday Setups - 11/17

Happy Sunday,

To make your Monday 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 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.

What a difference a week makes…again!

The /ES increased in pre-market hours Monday, tagging the 161.8% extension measured from the high to low we saw in october. From there, it sold off and chopped around 6000-6020. The Fed made some comments that they might slow rate cutting, which brought a new low on the week Thursday. Friday was just a walk-down day with a tiny bit of short covering into the close.

We talked about this potential last week, as the indices were extended at 3 ATR on the daily charts (see SPX chart below):

We’re now at a pretty critical level, which might be support. The /ES closed just below the 21 EMA and slightly above the 50% retracement of the bullish move that came after the election.

While this may feel drastic, given the continued selling pressure we saw on Friday, we are objectively in the buy zone of a bullish market.

The 8 EMA is higher than the 21 EMA, which is higher than the 34 EMA on the Daily and Weekly charts. So, the trend is bullish.

So, do we just pile in and go right back up?

It’s entirely possible, but there are a few potential issues that we should be aware of when deciding how much risk to put on.

First, interest rates have been increasing (see chart below). This is generally bearish for equities. However, it is at a 61.8% retracement level from the prior swing high to swing low. So, this could pause at potential resistance.

Second, the dollar index has also been increasing. Over the past several months, it has been trading in a range, and it is at the 50% retracement level from the larger move down it saw at the end of ‘23 into ‘24. So, this again could prove to be resistance and ease back down. However, if it breaks out, this could increase bearish sentiment in equities.

Also, the VIX poked its head back up to the 21 EMA on the daily chart with the selling we saw at the end of the week. Could this be a place where it pauses and reverts back down?

Now, looking at the /NQ - this had a more drastic decline down to the 34 EMA on the Daily chart (& the 61.8% retracement from the post-election run up). So, weaker than the /ES as it reached the 34 EMA, but this could also be support.

Finally, let’s look at the put/call ratio:

The 10 day moving average is still very low (which is often bearish). However, Thursday we got spikes higher than we have seen in the prior 45 trading days. Friday, it was also more elevated than the average range of the past month. So, this could be similar to what we saw in August and two weeks ago (blue boxes in charts above).

Net - we are at critical support. There are several reasons to believe we continue higher in the short term, but we’ll need to see these levels hold for confirmation.

Now that monthly options expiration is out of the way, this could have been enough of a reset in pricing for the indices to move higher. Though, we’ll watch price early this week for confirmation.

If the dollar or interest rates break higher, that could be a flag that the trend might be changing.

Also, we could see a bit of a head-fake early this week, where the indices take out this past week’s low to hit stops, find liquidity, and then continue higher. This happens because a lot of market participants put their stops right below prior lows. I would watch for an hourly close below last week’s low that might indicate further selling pressure.

Looking forward to this week, the biggest potential catalyst for a larger move (up or down) is NVDA earnings Wednesday after the close. NVDA is the most heavily weighted name in both the S&P (~7%) and Nasdaq (~9%), so a big move could impact the indices overall.

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

This week’s Trade Ideas

1.) ABT  Long

Reasoning:

• Bullish Trend (8 EMA > 21 EMA > 34 EMA) on the daily and weekly charts - so, we are trading with the trend

• There is a squeeze on the Daily chart, which increase the probability for a bigger move over the next few weeks.

  • There is also a squeeze on the Monthly Chart. TSLA is a recent example of a Monthly squeeze. These can bring larger than expected moves. So, I like the potential of the daily squeeze helping to fire the monthly squeeze long.

My Levels:

Entry Zone: $115.5 - $116

• 34 EMA (green line in daily chart) up to the 8 EMA (blue line in the daily chart)

• Entries priced at current prices - this is the 8 and 21 EMAs.

Targets: $201 - $206

• Target 1: $123

  • 61.8% fibonacci extension from the all-time swing high to the low seen in October ‘23. This is also a 127.2% extension from one of the prior swings.

• Target 2: $132

  • 78.6% fibonacci extension from the all-time swing high to the low seen in October ‘23, and also a 161.8% extension from one of the prior swings.

ABT Options Strategies

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