Sunday Setups - 3/2

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.

Despite the peak above all time highs on 2/19, the SPX found sellers at the top of the range it has been trading in over the past two months. The sell-off Friday 2/21 led to additional selling, pretty much all week.

We had a vicious rally to end the week, which could lead to higher prices. However, it failed to trade back to the 8 EMA, which does not give me much confidence in near-term upside.

We are still trading within a range, and have been for the past two months. However, the daily squeeze has now fired short.

So, this puts probability in favor of the bulls, at least for the next week or so.

If we get a rally to start the week, the 6000-6015 range will be a critical zone. If we get two daily closes above the 21 EMA (6015 as of today), I will look for further upside. However, if buyers fail at these levels, I will look to short the SPX.

Downside targets would be 5670 - 5720: 5720 being the 200 day SMA and 5670 being the 127.2% extension measured by the recent low to high swing.

I’ll be watching Bitcoin this week, as this has been a good indication of risk-on / risk-off appetite in the market. It looks like we have found a short-term bottom with reversal candle that printed Friday. But, again, the 21 EMA on the daily chart will be a critical level (similar to the SPX).

Finally, looking at the Put/Call Ratio, the 10 day simple moving average is moving towards a more bullish read (ideally up near 0.8 or higher):

I’ll be looking for a more drastic move for confirmation of a near-term bottom in the market. Specifically, a daily reading of 1.0 or higher OR the 10 day SMA printing at 0.8 or higher. You can see the past few times either of these scenarios played out, the market rallied over the next several days.

Net - we may start the week with a bit more upside, but I have to favor the short side of the indices given 1) the bearish EMA structure on the daily chart and 2) the daily squeeze fired short, which could take prices even lower.

There are still some good long opportunities in the market - the sky is not falling. However, we just need to limit position size and be conservative on the long side.

Volatility = opportunity!

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

This week’s Trade Ideas

1.) SPY  Short

Reasoning:

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