Sunday Setups - 12/15

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.

Inflation report came and went with very few fireworks. It was a relatively quiet week, with mega-cap tech continuing higher.

This continues to be a strong bullish trend - the 21 daily EMA is rising to meet price, as we consolidate near all time highs.

Not much has changed from the commentary last week. The focus continues to be the long side of the market, but there are a couple yellow flags that point to the potential for lower prices at some point over the next few weeks.

First, all time highs are bullish, and the market structure is bullish - so, I will not fight that trend.

Though, the put/call ratio and the VIX both are getting close to levels that could warrant either 1) some speculative short positions in the indices or 2) decreased risk on the long side of the market.

First the put/call ratio:

The purple line in this chart is the 10 day moving average of the put/call ratio. When this gets to extreme low levels, the probability for a pull-back in equities increases.

As you can see, we have been at very low levels for a few weeks, so it does not mean that we sell off right away, but it just means that we are in an environment where we need to be conservative with entries and decrease position size on the long side.

Looking at the VIX, this is near relative lows:

This VIX is a mean-reverting product, and when it makes new relative lows, the probability of a decline in equity prices increases.

You can see this highlighted on 11/13 and 12/6 most recently. Shortly after those closing prices, the /ES sold off.

So, if the VIX drops down near 12.7 or lower, I will look at speculative short positions in the SPX.

Finally, let’s look at the setup in Bitcoin, which can be an indication of a risk-on or risk-off environment.

This is very bullish - we see a run up in prices, consolidation near all time highs, and a daily squeeze forming. I put the favor in direction of trend, so will be looking for this to take Bitcoin to higher prices, near 110-115k. I have a couple ideas for how to play this outside of the futures as well.

Finally, the mag7 names are all near all time highs and continue to push higher. So, I do not want to fight that trend.

So, I think it makes sense that we continue to climb the wall of worry a bit more before a larger pullback. Another push higher could bring the put/call and VIX lower, setting up a clean speculative short opportunity.

If the indices pull back to their 21 EMAs this week, I will look at longs with a stop on a close below the 21 EMA on the daily.

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

This week’s Trade Ideas

1.) COIN  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.

• Good overall pattern - rise in prices, consolidation above the 21 EMA, building momentum for the next move.

• Bitcoin has a daily squeeze setting up, and bullish movement will help this name.

My Levels:

Entry Zone: $300 - $313

• 21 Daily EMA (red line in daily chart) up to the 8 Daily EMA (blue line in the daily chart)

• Entries priced $310 (current prices, slightly below the Daily 8 EMA)

Targets: $368

• Target 1: $368

  • 127.2% fibonacci extension from most recent swing high to low in the name at $363, and the 161.8% extension from the larger swing this year is at $368.

COIN Options Strategies

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