S&P 500 Futures Daily Chart – 24-hr Data
It was a simple plan. Act like Russia would invade Ukraine even though you knew they wouldn’t. Hit the Country with more fear (having practiced so much with the China Virus). Then act like your deft diplomatic experience saved the day! That ought to boost dismal approval ratings, Sayeth the Raven. But once you lose the nation’s confidence, it is hard to get it back.
The latest news is that Russia is pulling back from Ukraine, having achieved its goals of preventing the West from planting NATO and its missiles in its backyard. We did something similar with Cuba so many years ago – which is why I have had difficulty seeing the problem with Russia’s requests. With the West so focused on wokeism and other nonsense, all it took was a good bluff with a weak U.S. President for Putin to succeed. Perhaps a bloody conflict has been avoided. We will see what happens. For now, watch the lamestream media confuse who was the better diplomat, Putin or Biden?
Meanwhile, back at the market, I have been advising daytraders to keep position size small (and by all means always use stops) until the VIX volatility index gets back to a reasonable level. Yesterday was an excellent example of the importance of the concepts. Ukraine’s President Zalensky sarcastically stated that Russia would invade today. The correct context was lost in translation. The Dow lost 500 points in the next few minutes and never fully recovered on the day.
Interestingly, the major indices held well above the January lows in a good test run of difficult circumstances. The indices have turned around considerably overnight on news that Russia may be withdrawing troops. Oil prices have sharply reversed this morning, down 3%. The S&P 500 will open with a large gap higher, above both its five and 200-day lines. We shall see if the market can hold these gains, as the gains will be attributable to short-covering again.
But the minute we see oil prices reverse lower and global tensions calm, interest rates jump again, and we are back to the inflation problem. So there will be no rest for the weary in the circumstances. The January PPI (Producer Price Index) comes out later today. We shall see how wholesale inflation is measuring up as it leads to consumer inflation.
I remain open to a potential swing trade for cash and leveraged accounts. I like the potential “h” reversal pattern in the SPY and QQQ. I am also pondering Bitcoin’s better performance than (and decoupling from the S&P 500). Is this a leading indicator for “risk-on” assets? It was on the way down. Let’s see what the day brings.
Day Traders
As was the case a few days ago, resistance remains at 4500 and 4520. Support lies at 4450 and 4400. Recall that we are approaching monthly options expiration on Friday, which has pulled the market down into some of its deepest troughs over the last year. But it may be different this time.
As we approach Friday, the trading range should tighten around the 4500 area. An extended rally fueled by declining implied volatility and put decay could push markets back up into the 4520-4550 area by Thursday, which is back to where I noted heavy resistance last week.
Today, it appears that 25% of SPY/SPX/QQQ negative gamma pressure will expire Friday, which should remove some net negative gamma by Monday. As this is a heavy put expiration, the decay, and closing of these puts could keep a tailwind for markets through Friday at the expense of some “lower bound” support (currently at 4370) into month-end. This lower bound idea is that, essentially, markets are now too well-hedged to have a material decline.
Mark all your key levels, including the abovementioned ones, the overnight high and low (4468 and 4381.75), the overnight halfback at 4424.50, and yesterday’s high at 4420. Don’t forget to mark the regular session open.
Have a keen awareness of critical moving averages nearby, including the five and 200-day lines near 4450 and the 21-day line (mean) around 4500. The influence of these lines can supersede other levels.
Also, note the ‘h’ reversal patterns on the daily SPY and QQQ. These patterns look bearish and often fool inexperienced traders. The pattern can be bullish as the retest of the recent low approaches.
The market will open with a large, true gap higher on inventory that is almost 100% net long with many shorts that could undoubtedly hit the panic button and buy. Gap Rules apply – especially numbers two and four.
But I have highlighted the area that the market will open into, and there is quite a bit of resistance to overcome, including the downtrend/supply line from February 10th. Recall that we broke this line once and failed.
Use any gap fill, and the extent of the filling, as your initial sentiment indicator. Assume sellers remain in control if the gap fills and there is acceptance within yesterday’s range. If the market punches through the aforementioned resistance zone, target 4500. If it fails, target 4400 but monitor for continuation after each support level is breached or not.
With the overnight high pushing the endpoint of single prints, you can use the level (4468) as a potential long trigger. If the gap fills and there is acceptance within yesterday’s range, this is not a meaningful reversal.
A.F. Thornton