Sunday Setups - 12/1

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 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.

Happy Thanksgiving everyone! I hope you all had a wonderful long weekend with friends, family, and plenty of turkey. Now, who’s hungry for some trade ideas?

With the shortened trading week, we got some choppy upward movement in the indices. Though, despite the low volume, the S&P futures eeked out another new all time high.

The Nasdaq futures were also green, but did not make new highs.

We continue to have a pattern of higher highs and higher lows, and the 8 period exponential moving average (EMA) is greater than the 21 EMA, which is greater than the 34 EMA on both the S&P (/ES) & the Nasdaq (/NQ).

_{(8 EMA is blue line in chart, 21 EMA is red line in charts, & 34 EMA is the green line in charts)}

We’re clearly still in a bullish trend.

So, do we just keep marching higher, or is there any reason to think this might be coming to an end?

Let’s take a look at a few levels and then some of the other markets/indicators to get a better feel for this.

Like we talked about last week, the /ES has cleared the 61.8% retracement from the most recent high to low swing (5977.5). Now that it has made a new high, the next level I will be targeting is the 127.2% extension, which is at $6107.

There is also a 161.8% level from the larger move down we saw in July. This is right around $6100 as well. So, that looks like a clear upside target for the short-term.

The /NQ, however, is finding resistance at the 61.8% level from the most recent high to low swing - this is right around $21000.

Given the /ES is on to new highs, I have to give this product the benefit of the doubt & look for higher prices. However, if this level fails and we get a close below the daily 21 EMA ($20783 as of now), we could potentially see this lead the markets lower.

To the upside, I would be looking for $21595 and then $22000, which are fibonacci extensions from prior swings.

Technically, I can’t be bearish until there is some sort of sell signal. So, I’ll continue to focus on upside targets, unless that happens. The first signal here would be a failure at $21000 and a daily close below the 21 EMA.

Ok, now let’s look at some of the other markets that could impact risk sentiment.

Revisiting the 10yr interest rate chart, we had a fairly large decrease this week, as bonds rallied. They failed at that 61.8% level of 44.7, the daily squeeze has fired short, and we have two closes below the daily 34 EMA.

Given the technical breaks we saw this week, I would expect these to continue to decrease or at least consolidate in the near-term. This is generally bullish for equities.

Second, the dollar index continues to be range bound. Over the past several months, it has been trading in a range, and it looked like it might be breaking out of that range a week ago. This would be bearish for equities if the move was sustained higher, but it found resistance at the top of that range and sold off. So, no clear red flags for equities at the moment.

Finally, let’s look at the put/call ratio, which is starting to show signs of a red flag…

The 10 day simple moving average (purple line in chart) continues to tick lower. When this makes new relative lows, it can be a caution sign for the equity markets. It does not mean that you sell everything and go short, but the likelihood of a pullback in the markets tends to increase.

If you look at the 10 day SMA of this in July of this year, the SMA reached new lows while the SPX ticked higher for about two weeks. The 10 day SMA continued to lower levels, and the SPX sold off ~550 points down to the weekly 21 EMA.

Could we be setting up for something similar over the next few weeks?

It’s possible, but I’ll continue to watch the trend of this moving average over the next week. If prices continue higher and this continues lower, I will look to take profits and lighten up my risk.

If we look at the Mag7 names, they are a bit mixed.

• TSLA: bullish structure on daily/weekly charts & positive momentum

• AAPL: bullish structure on daily/weekly charts & new all time highs. 2 day squeeze fired long, so could see higher prices continue.

• MSFT: trading in a range & choppy, but bullish structure on weekly chart. This also has a daily squeeze setting up, which could push it higher.

• GOOGL: trading in a range & choppy - bullish on weekly, and mixed on the daily. A weekly squeeze is starting to set up, so we could see some consolidation over the next month or so before this moves significantly.

• META: bullish structure on the weekly, and shifting bullish on the daily. 2 day squeeze shifting bullish, which could take this higher.

• AMZN: bullish structure on the weekly and daily chart

• NVDA: bullish structure on the weekly, but a bit choppy on the daily chart. No clear signals so this may consolidate a bit more.

Net - they are primarily bullish, but price action is mixed on some of the shorter time frames. So, just like this past week, we could see a bit of chop with a bullish tone.

Finally, Bitcoin is up. This is a good indicator of a risk-on environment. This has a weekly squeeze that fired long, so we could see continuation of higher prices.

So, the million dollar question - where do we go from here?

I think it makes sense that we continue to see a rally in the indices, which may push the moving average lower in the put/call ratio, setting up a more clear sell signal - similar to what we saw in July of this year.

So, I’ll continue to focus on bullish names with good structure, a strong setup, and opportunities to buy at the mean (21 EMA). There are a few good ones setting up for this week!

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

This week’s Trade Ideas

1.) OKLO  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 couple weeks.

• Price has been holding support at the mean (21 EMA) on the daily chart, so the risk/reward is beneficial, as I would cut this loose with a close below the 34 EMA.

My Levels:

Entry Zone: $20 - $23

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

• Entries priced $23

Targets: $31 - $34

• Target 1: $21

  • 127.2% fibonacci extension from most recent swings.

• Target 2: $34

  • 161.8% fibonacci extension from most recent swings.

OKLO Options Strategies

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