Sunday Setups - 9/22

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 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.

Before we get started, a friendly reminder that if you join Fresh Trade Ideas Community, you’ll unlock instant access to:

📈 All of our Premium Trade Ideas.

⏰ Real-time trade alerts throughout the week.

📗 Learn how to find the best setups on your own.

❓Ask any questions about setups, the market, or options.

And much more.

👉 Take advantage of our special deal for newsletter subscribers and get access to our premium newsletter for two weeks - free!

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.

We got a 50 basis point cut! The indices basically chopped around, waiting for the Fed decision. Initial reaction was a spike to new highs, but that was quickly sold off - closing Wednesday near the lows:

Last week, I showed you the Fed Funds Futures implied a 50/50 split between a 25 basis pt cut and a 50 basis pt cut. By Wednesday, that had shifted to 63% probability of a 50 bps cut. LAST Wednesday, the market had priced in a 25 bps cut. So, the move higher we saw following the cut makes sense, as I don’t think this was truly priced in.

As I mentioned last week, the real reaction/conviction move tends to happen the day after the Fed news. We saw this clearly this past week - once the dust settled, the /ES spiked up overnight and continued its march to new all time highs.

The SPX cash index rose to $5700 and pretty much pinned there on Friday’s close.

This aligns with the 127.2% extension measured from the most recent swing high to low we saw in the index. It is also a large round psychological level.

While the S&P made new all time highs, the Nasdaq continues to underperform. The NDX is having a hard time breaking through that 20k level. If it does, there is a clear target up near $20,800 (which would be roughly 21k on the /NQ).

So, where do we go from here?

Well, there are a few pieces of information that are important to consider….especially for this coming week.

One - prices are extended well above the exponential moving averages on the daily chart. That doesn’t mean prices are scheduled to drop this week back to the EMAs, but it does mean that you take on much more risk buying at these levels vs waiting for a reversion to the mean.

Two - there is some interesting seasonality the week after triple witching expiration (Friday).

For those not familiar: Triple witching is the expiration on the same day of stock options, stock index futures, and stock index options contracts. Triple witching occurs quarterly—on the third Friday of March, June, September, and December. Triple-witching days can cause a spike in trading activity as traders close, roll out, or offset their expiring positions, particularly in the final hour of trading.

Below is a great summary from the Stock Trader’s Almanac, which looks at historical seasonality. While not a perfect science, there are a few times each year where this type of knowledge can help shape our trading strategy. This one stands out.

Over the past 34 years, the S&P has been down 27 times the week following September triple witching (79% of weekly sessions). History doesn’t always repeat itself, but the market is driven by humans, and history tends to rhyme.

I think it’s also important to point out that the average decline was around -1%. If that came to fruition this week, the SPX would end the week at $5645. The daily 8 EMA on the SPX is $5640.

Again, don’t take this as gospel - just a data point to consider when entering the market.

Back to the charts…

Near-term, both the /NQ and the /ES have a squeeze forming on the 1hr charts.

There are two main scenarios I am considering here. One, the hourly squeezes fire long, pushing prices higher. This is met with profit-taking and a weaker few days into the end of the week. Given the bullish structure of the hourly and longer-term time frame charts, this would make sense. The profit taking would align with the historical seasonality. The other scenario is that these fire short, taking the market a bit lower this week.

Now, seasonality may not come into play this week, and we could just continue higher. I have more conviction in lower prices this week, but want to consider both, as this is clearly a bullish market.

I don’t want to confuse anyone. I am net long, and bulls are in charge of this market. I am just considered a potential pull-back that would give us a better buying opportunity.

I’m not looking for the market to fall apart, but I think it makes sense that we could see a reversion to the 8 or 21 EMA on the SPX this week. Given we are in a bullish trend, I’m not going to bet the farm on this, but I may place some smaller bearish positions on the SPX to hedge my other longs.

This also will likely present buying opportunities for both the SPX but also strong names with bullish setups. Down days can be a blessing, as it can give us entries with edge!

Zooming out and looking longer term, the path of least resistance remains higher. So, I will continue to focus on the long side of the market. Though, I am waiting for better entries, after taking profits this past week.

Let’s take a look at the SPX this past year.

This is a pattern of higher highs, and higher lows - bullish. The 8 EMA is greater than the 21 EMA, which is greater than the 34 EMA - bullish. We are in an election year - bullish.

Ok, on to the Mag 7 stocks - how do they look?

The majority are bullish on both the daily and weekly charts, and all are bullish on the weekly chart - supporting a larger bullish trend and higher prices.

AMZN, META, TSLA, AAPL, MSFT both have weekly squeezes, with bullish structure (8 EMA > 21 EMA > 34 EMA).

NVDA is somewhat neutral. While the Weekly charts are bullish, the daily charts are mixed - EMAs are stacked negatively, but price is above them. Have to give favor to the bulls, as the longer time frame is bullish.

So, we will approach this market the same way we approach every trade - find names and levels where we can get edge, and use options to put the risk/reward profile in our favor.

There are several good long setups in this market, but will want to be cautious about entries. So, I’ll wait for the 21 EMA instead of placing longs on momentum names above their moving averages.

Alright, here is what I’m trading this week.

This week’s Trade Ideas

1.) INTU  Long

Reasoning:

• Bullish Trend (8 EMA > 21 EMA > 34 EMA) on the daily and weekly charts - trading with the trend

• Squeeze on the daily and weekly charts, which increase the probability for a bigger move in the near future.

• Just about 11% off of life-time highs, so potential for that to be breached with little resistance.

My Levels:

Subscribe to Full Access to read the rest.