Sunday Setups - 2/9

Happy Sunday,

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.

Big drop Monday. Rally, rally, rally, sell off Friday. Below is the daily chart of the S&P Futures:

We have been in a wide range for the past two months. How many more weeks are we going to get like this?

Well, if we take a look at the weekly chart, there is a squeeze forming (two red dots on lower indicator:

So, it is entirely possible that we see more wide chop for the next several weeks, before the squeeze indicator resolves.

Given the prevailing trend is bullish (positively stacked EMAs on the weekly chart), I would lean bullish in terms of direction for this squeeze.

Ultimately, I think this is setting up for a larger move over the next several months - so, there will be some great opportunity in tandem with this.

However, in the near-term, it is possible that we see a bit more volatility.

We have yet to clear the high made on 1/24 - the past two weeks have been lower highs and lower lows.

Additionally, the put/call ratio is still in bearish territory:

The purple line is the 10 day simple moving average, and that sits at 0.67. For a true bottom to be put in place, this will likely need to move up closer to 0.8.

Finally, Bitcoin has been a fairly good indication of risk sentiment in the market. It has been selling off, indicating a move towards risk-off, at least in the near term.

The 8 EMA (blue line in chart) is close to crossing below the 34 EMA (green line in chart). Every time this has happened in the past 18 months, the product has sold off into a new relative low before moving higher.

There is a daily squeeze in the /BTC futures. So, a bit more selling and this could fire to the downside, which could translate to weakness in the equity markets as well.

So, I think it makes sense that we test the lows from the prior two weeks before moving higher.

There is also some confluence of fibonacci extensions from the 3 recent low to high swings. This is around $5880 in the /ES futures product.

If we get a close below the 34 EMA on a daily basis, I will be targeting this level to the downside. It might also be worth a few low risk/high reward shots to the downside in the SPX, aiming for 5850-5900.
- The 5900/5850 put debit spread for Friday is going for about 5 bucks: BUY +1 VERTICAL SPX 100 (Weeklys) 14 FEB 25 5900/5850 PUT @5.05 LMT
- The 5850 put-side butterfly (50 wide) is going for 2.40: BUY +1 BUTTERFLY SPX 100 (Weeklys) 14 FEB 25 5900/5850/5800 PUT @2.40 LMT

These both offer a solid risk/reward to protect against downside action this week.

However, on the other hand, if the indices continue to hold the 21 EMA on a daily closing basis (as they have done the past two weeks), I’ll be looking for further consolidation & more upside.

Though I would want to see the put/call ratio increase to have confidence in new all time highs.

On the heels of some great wins in RDDT, RBRK, and CRWD, we had some good entries this past week in solid setups. There are a few more setting up this week.

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

This week’s Trade Ideas

1.) MCK  Long

Reasoning:

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