Sunday Setups - 3/9

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.

This week was a wild ride! Tariffs dominated the headlines, and we saw an uptick in volatility.

The SPX broke out of the range it has been stuck in the past several months (5800 - 6100).

While price moved lower, there was quite a bit of violent back and forth, which presents some decent opportunities for trades on both sides of the market.

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

Well, as it stands, the near-term structure is bearish: the shorter EMAs are lower than the longer EMAs (34 EMA > 21 EMA > 8 EMA) on the daily chart.

In this type of environment, I’ll look to short rallies into the falling 21 EMA on the daily chart.

However, there are a few things we need to consider for the next week or two.

First, we saw buyers step in Friday at the 127.2% extension, measured from the most recent swing low to swing high.

Additionally, this is the first time the SPX has tested its 200 Day simple moving average (light blue line in chart below) since October of 2023.

The last time this happened, we found initial support, rallied into the falling 21/34 EMAs and then continued lower before resuming the uptrend.

Could we see something similar this time?

Looking at the weekly chart of the SPX, the prevailing trend remains bullish (8 EMA > 21 EMA > 34 EMA), and a squeeze is forming. If this trend holds, the squeeze could ultimately take the index into new all time highs over the next month or so.

Price closed the week slightly below the 34 EMA on the weekly chart (green line in chart above). If this was stronger, it would have held the 34 or 21 EMA. So, we’ll need to see how things play out to make a better judgement on the direction of the market over the next two months. The bullish structure is not broken, but it is showing some cracks in the foundation.

Finally, let’s take a look at the put/call ratio:

The purple line is the 10 day simple moving average of the put/call ratio. It rose this week, and is now at 0.8.

The last two times the 10 day SMA reached these levels, the market found a short-term bottom.

So, while we could see a bit more downside before a rally, there is not enough edge to short at these levels.

The next upside hurdle will be the 21 EMA on the daily chart, which would present a better risk/reward scenario for entering shorts.

To summarize, we may have found near-term support, with the SPX holding critical levels, the put/call rising, and the SPX weekly chart holding bullish structure. The next area of decision to the upside will be the 21 EMA.

If we get two daily closes above the 21 EMA, I will look for long opportunities in the indices. If we fail to see this, more downside could be in store.

Though, I want to be clear that it is hard to definitively say that we found near-term support. In an ideal world, the VIX would have reached a new relative high, creating more of a capitulation-type move down.

The most recent spike high was around $28 - I would like to see a spike high above that to feel more confidence that the market has found a more meaningful low. This signifies more of a capitulation and can lead to a low.

So, there is potential that the indices rally from here to their 21 EMA on the daily charts, we have to be open for additional down-side.

What does that mean for how we trade? Well, 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!

Despite the volatility this past week, we were able to take profits on longs in MCK and PAYX. Below, I’ll review a few other setups I like in the coming week.

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

This week’s Trade Ideas

1.) ASTS  Long

Reasoning:

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