Sputtering Near the Channel Top…

Sputtering Near the Channel Top…

We closed our first long trades for 2024 for a nice profit last week. We are back to cash and/or short (aggressive accounts) with a tight stop after the latest sell signal. Yesterday, the price sold down to the Daily Expected Move low and is opening below today’s Daily Expected Move low (4776) this morning after steady selling all night. The Weekly Expected Move low is around 4765, and might also be tested today.

So far in this shortened trading week, the S&P 500 is stumbling as we head into Friday’s Monthly OPEX, largely due to Fed comments, stronger-than-expected economic reports, and some ensuing pressure on interest rates. We have more Fed speakers and a few more key reports (e.g. Consumer Confidence) later this week, so expect volatility to increase as the week wears on. As we are now into Quarterly Earnings Reports and season, forward guidance could also throw a few monkey wrenches into the mix.

A large amount of options Gamma is set to expire this week at Friday’s Monthly OPEX, which can allow the market to move more freely. The main level to watch is 4800 for pinning until the significant Gamma gathering at that level expires.

Below that, there aren’t many supportive levels until 4700 and then 4600. The Gamma flip line is currently at 4750. If the price decisively drops below that, it opens the door for more volatility and the potential to test 4700 and 4600. There are large air pockets down to those levels so the price can move quickly. That would be the more bearish case.

On the bullish side, the price is above the Year-To-Date (YTD) VWAP and is currently trading above the YTD Low VWAP and below the YTD High VWAP. On a Week-To-Date/Daily basis, the price closed yesterday just below the Weekly VWAP.

For the bullish case, we want to hold the YTD Low VWAP and get back above the WTD VWAP. The bullish case would see the price move up to the 4800 pin and potentially make a run for the all-time high (ATH) after OPEX.

But the price is trading below the 5-day (Machine Line). The line is currently inclining, which is positive. But this is a key short-term level, the violation of which triggers stops on long positions. Another test of the 20-Day (Mean) lies below that.

The weekly EMs are still wide open. If the runoff in Gamma frees the market to move, I’d expect we will make a run for one of the weekly EMs – but whether it will be the WEM high or low is not readily discernable right now.

AF Thornton

Website: https://tradingarchimedes.com

A.F. "Arthur" Thornton is an expert in logic, risk/reward quantification, market fractals, pattern recognition and asset class behavioral analysis with 34 years devoted to developing algorithmic and quantitative trading systems. In addition to trading his own capital, Mr. Thornton designs custom algorithmic and quantitative trading systems for a small and exclusive group of exceptionally qualified traders.


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