In the S&P 500, we are experiencing a mini-megaphone pattern on the hourly charts. This pattern portends a somewhat confused market, something also confirmed by the inability of the market to stay within the expected moves for the past few weeks.
Once again, the SKEW (which measures the smart-money tail risk) has hit all-time highs, at 171 last Friday. That telegraphs to me that the smart money has hedged their risk at a record pace – perhaps even expecting a black swan event. Carry that forward in your narrative.
The last week of June tends to be up. There often is end-of-the-quarter window dressing and euphoria before the holiday. Sure, we might get one or two-day pullback, but bulls will buy the it, and any material pullback is likely to start on or after July 1st, perhaps even the holiday weekend. Since it has broken above the 3-month trading range, the market could accelerate up. The trading range was 200 points tall. And therefore, the measured move target is 4,400.
The bears are still looking for their wedge top with the May 7 and June 14 highs, but any reversal will probably be minor. However, with the butterfly topping pattern on the QQQ close to completion – the bears may finally get a few days in the sun. That pattern could be less than a few days from turning south.
For now, traders are likely to expect higher prices. The final three trading days of a month are usually up, increasing the chance of a sharp move higher, especially in the final hour on Wednesday (June 30th).
The week preceding the 4th of July typically prints the second-lowest volume of the year (Christmas week is the slowest). But this is less of an issue now that most of the volume is traded by computers.
Today’s Plan
Early indications provide no guidance, so I will likely trade later than earlier. Value continues to be overlapping to higher with little change in the dynamics underpinning this rally. Short-term momentum longs continue to get longer in a continually one-sided market. Incremental daily gains seem to be the norm right now. We have a new all-time high once again in the overnight session (carry this forward), and there is no lower price exploration in the overnight session. All of this is bullish.
Yesterday, the CME Group did away with the 4:15 – 4:30 break in futures. This means they are now trading until 5 pm EST before taking that one-hour break. This means that settlements are now officially at 5 pm instead of 4:15. For the time being, I am continuing to stop my profiles at 4:15 and will monitor this to see if it makes sense to make a change.
There is little else to say here other than reiterating that the structure under the market bodes well for liquidation breaks to occur. To that end, I continue to list all of the points that need to be repaired in the key levels on the hourly chart above. Those levels are 4283.25 (ONH / ATH), 4270.00 (POC), 4260.75 (Weak Low), 4256.25 (Prominent VPOC from 6/24), 4251.25 (Top of Gap), 4246.25 (Bottom of Gap), and finally 4239.00 Prominent VPOC from 6/23). Also, watch your top channel/wedge lines.
Look for the 30-min range breakout and buy on the pullback. Follow the quad sequence as usual watching the identified levels for support. resistance or pivots.
A.F. Thornton