VIX at 22, DOW at a resistance zone. QQQ, SPY looking good.

CPI is behind us and for once the market did not do a rug pull act on traders. I still can’t believe that VIX has finally dropped to 22. DOW has shot up too fast and is at a point where a pullback or breakout could materialize. QQQ and SPY are just following DOW’s lead. 

SPY 6M daily – Looking stable

What we have been noticing the past few weeks is that DOW has been leading the charge, SPY was languishing in a range-bound territory and QQQ was the laggard. Things have changed last week, as SPY has picked up some momentum. It has a long way to go before it nears over-bought territory (unlike DOW). If nothing earth-shattering happens next week (like unusually bad earnings or bad PPI data), technical analysis would indicate that SPY can keep shooting up to $415 before it encounters any resistance.

QQQ 6m daily – Nasdaq turning green too?

QQQ was looking horrible just a week ago, but things have changed. Nasdaq is following DOW on its way up. Since DOW is slightly overstretched to the upside, it is impossible to find any bullish trades in DOW stocks. Nasdaq and S&P 500 on the other hand are just getting started and all trading opportunities should come from these.

DIA 6m daily – At a critical point. Breakout or Bust?

DOW has shot up really fast and is kinda looking scary to me. We are almost in overbought territory. Take a look at what has happened in the past when DOW hits overbought/oversold RSI levels. It ain’t pretty! Next week is lined up with some important stuff. PPI on Tuesday and HD, TGT, LOW, WMT reporting earnings between Tuesday – Thursday is enough to decide where we go next. If PPI is stable and earnings are good, I quickly expect DIA to breakout above 340 and head towards 355 (Hard to believe that levels above 355 bring back a bull market).

On the other hand, keep a close eye on Tue and Wed. If earnings are bad or the PPI number brings bad news, we can get rejected at $340, and we head back down. This means more hedging (and there is no shortage of put spread ideas in DOW at this point as every stock is overstretched to the upside)

Market moving events next week

As mentioned earlier, PPI and earnings on Tuesday, Wednesday are critical to gauge to market direction.

Earnings 

WMT, HD, AAP, LOW, TGT – These are all DOW stocks which will decide where this market goes next since DOW is the primary driving force here. NVDA on Wed will also have some effect on Nasdaq.

Macro Analysis (VIX)

I still cannot believe that VIX is at 22 which represents stability in markets. Can we hold this? Well, we will know by Thursday. If earnings/PPI is bad, VIX will spike up back into correction territory, and this rally is over. This means either taking hedge trades or going bear heavy to take advantage of a market drop.

Spread Tracker 

  • Not much to say here. All future expirations are looking great. See my notes in the image below for details.

Key Takeaways

  • DOW at a point where we breakout to make new highs, or get rejected at resistance.
  • PPI on Tuesday
  • DOW stocks WM, TGT, HD, LOW reporting on Tue, Wed
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