Sunday Setups - 3/16

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.

Last week’s market action was nothing short of chaotic. On Monday, the indices broke down sharply, pushing the S&P 500 futures (/ES) below key technical levels and into a deeper retracement. However, by the end of the week, signs were emerging that the market may be setting up for at least a short-term bounce.

Let’s break it down…

• /ES has been trading below the 3 ATR Keltner Channel - The S&P 500 futures (/ES) dropped below the lower Keltner Channel (3 ATR) on the daily chart (see chart below). This type of extended move often signals exhaustion, meaning we could see a reflexive bounce soon.

• 161.8% Fibonacci Extension Level Held. Price reached the 161.8% Fibonacci extension, measured from the January 13 low to the February 19 high. Historically, this is a common level for markets to at least pause before resuming the primary trend (see chart above).

• VIX Spiked Above 28 – A Capitulation Signal? The VIX broke above 28 on Monday, marking a fresh relative high (see chart below). Typically, when the volatility index spikes to new highs while the market sells off aggressively, it signals some level of capitulation—where traders panic, liquidate positions, and create the conditions for a potential reversal. Capitulation doesn’t necessarily mean a long-term bottom, but it often leads to a short-term tradable bounce as selling pressure exhausts, shorts cover, and institutional buyers step in at discounted prices.

• Put/Call Ratio Above 0.8 – A Reliable Bounce Indicator. Another bullish contrarian signal is the 10-day moving average of the put/call ratio (purple line in chart below), which pushed above 0.8 last week. The last time we saw this level was September 2024, and shortly after, the market staged a meaningful bounce. While this doesn’t guarantee an immediate bottom, it does suggest that the current environment is oversold and ripe for a reversion to the mean. When put buying is extreme (high put/call ratio), market makers are heavily hedged with short positions. As selling slows and prices start to stabilize, market makers begin unwinding those short hedges, adding more buying pressure.

Now, I’m not saying the absolute low of this year is in, but I do think that the market is gearing up for a short-term bounce.

Given the stretched technical conditions and the capitulation-like behavior on Monday, it’s reasonable to expect a bounce back toward the falling 21 EMA on the daily chart, which currently sits around 5815. This level will be a key test—if /ES can reclaim it, we could see a larger relief rally. However, if it acts as resistance, another wave of selling could take the market to fresh lows.

This week is options expiration, which could add fuel to any move higher. Large open interest in put positions means that as stocks move up, market makers will be forced to unwind short hedges, further pushing prices higher. If the bounce gets going, we could see an outsized move as short positions unwind.

I’ve outlined an SPX butterfly below with great risk/reward (risk 1 to make 10).

Now, the market remains technically weak, as the EMAs are stacked negatively (8 EMA < 21 EMA < 34 EMA), but extreme oversold conditions and capitulation-like signals indicate a bounce could happen soon.

If we get two daily closes above the 21 EMA on the daily chart, I will reconsider the potential for higher highs. For the time being though, we are still in short the rally mode (if we get a rally…).

As we mentioned last week, there are still opportunities to the long side, and there may be more short opportunities in the indices. So, we’ll need to focus on strong names, be conservative with our entries/exits, and limit our position sizing.

This is not the type of market to take max risk - wait for a more clear picture to develop before increasing position size.

And, remember, cash is a position as well!

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

This week’s Trade Ideas

1.) TTWO  Long

Reasoning:

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