Nasdaq down 20%, S&P 500 down 17%, Dow down 16%
This 6 week long correction which started on Aug 16th has taken us down to new lows for this year. All indices are oversold at this point and if we continue to slide next week, I expect to revisit pre-covid crash levels in Feb 2020. If we open deep red again on Monday, I will be taking a few put spreads and lean towards a more bearish outlook. Keep reading those daily announcements.
SPY 6M Daily Chart is oversold
If we look at SPY, we took out June lows, which is not a good sign at all. However, all the major market indices are now oversold and although I don’t see any fundamental long-term reason for these markets to turn around, a “technical bounce” can easily materialize and lead to a relief rally. On a 6M chart, DI- is also pointing down indicating a loss in downward pressure. Friday was a unique day because it was the end of the quarter too, so you never know why we got that nasty sell-off. We will know as early as Monday morning which direction these markets are headed.
SPY 3Y weekly chart looks scary!
Don’t get your hopes too high though. Zooming out to a 3y weekly chart tells a different story. If we get a nasty open on Monday, I fully expect these markets to revisit pre-covid levels in Feb 2020. If we do get a red-open on Monday, I will start taking more bear put spreads. If we get a green open, I will wait for the usual signs of higher highs, higher lows for a couple of days and wait for my existing “test the waters trades” to go ITM before I add any more bullish spreads.
AUDIBLE VERSION SLIGHTLY DELAYED
Amazon link: https://www.amazon.com/dp/B0B781VTZX
The latest edition of my book is available free to all Kindle Unlimited members. An audible version of the book was due to be released last week but has been delayed by 1 week. Hoping to see it out by Thursday. If you are wondering how somebody can listen to an audio book with technical charts and financial data, I must say I am pleasantly surprised by how well the book turned out to be. The narrator who I worked with is incredibly talented. As you listen to the book, you can glance at the accompanying charts available right here: https://25k.link/images
I hope you will find “Reading the markets like a Pro,” “The 2022 market correction,” and the chapter on “Scaling up” particularly useful. If you do get the book, kindly drop a review or even just a star rating for me. It will be greatly appreciated.
Already read the book? Kindly drop a review https://25k.link/book_review
Market moving events next week
- The focus next week revolves around employment data. We are in a “bad news is good news” environment, so weak job data will be taken as good for the markets. Outside of that, there are no binary events lined up and we can use technical analysis to gauge market direction.
Earnings start again in approx. 2 weeks
STZ and HELE from our watchlist report next week. But the real fun will start in approx 2 weeks with all the big boys reporting again. For now, enjoy the down time!
Macro Analysis (VIX)
Nothing more to add here than the obvious. Don’t expect any stability in these markets until VIX drops below 24.
Spread Tracker
- I have dropped my trading volume drastically as we are in a deep correction for 6 weeks. I have been able to achieve a net zero (no profit/loss) outcome in the last 6 weeks, which I am very happy about.
- 10/7 expiry is fully hedged and if I can get some closes next week, I will end up with a profit.
- I am looking to add trades but need the markets to turn around first. If markets give me a technical bounce next week and my PANW, MDB, INTU trades go ITM, that will give me the encouragement I need to to add more bullish trades.
- If we see a big red open on Monday morning, I expect another leg lower, so I will add a couple of bear put spreads in an attempt to take advantage of the sell-off
Key Takeaways
- No binary events next week
- 3rd quarter is behind us and we can easily get a technical bounce off the lows here.
CHEAT-SHEET
Sorry, no updates here. If markets continue to tank next week, I will have an update to these levels.
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