Market Outlook: Week of 4/4 – 4/8

Previous Week’s Update:

Are the markets getting rejected at the 200 day SMA?

The 1st quarter of this year is behind us and the markets continue to look bullish. This was no dead cat bounce as we have seen all the major indices and a ton of stocks bounce back with vengeance! I have been pointing out that the 200 day SMA may act as resistance. We did get a slight pullback around that area but the close on Friday was extremely bullish and if there is no sudden market moving news that comes out next week, I strongly feel that we are going to continue our march back up from here. Keep reading to find out why I am thinking this way.

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Keep an eye on the Spread Tracker

If you are a paying member, make sure you request access to the spread tracker as it is a good way to keep track of how we are doing after the market bottomed on 3/15/2022.  Since this correction was so deep and prolonged, a lot of technical patterns have been reset. As we continue our way up, it is hard to shake that feeling away that we can go back down again. Because of this, I have been trying my best to balance out my positions between Bullish and Bearish and things have turned out pretty good so far.

Market Moving Events next week

The Fed seems to be all over the place next week. We have FOMC minutes from the March meeting on Wednesday which will be interesting to see as it will confirm what the Fed is thinking about the rate hike cycle which will continue in May and their view on inflation. We also have multiple Fed Presidents speaking all over the place. Outside of that, I am not seeing any other market moving activity. Senor Putin always has the potential to throw a wrench into the mix, so that is a given.

Earnings Season starts again in 2 weeks!

We just have STZ from our watchlist reporting earnings next week. But fret not! Earnings season starts again shortly with many major banks reporting in the week starting 11th April.

Macro Analysis

VIX is trading between 19-24 levels which represents indecision, insecurity and a lack of conviction in market participants. As long as VIX stays below 24 any dips would be considered buying opportunities. If we stay in this “Chop City” area, we will be fine because of balancing our expirations out between Bear Puts and Bull Calls.

SPY observations – (Ignoring QQQ/DIA this week as they are all moving in sync)

I am using SPY this week to analyze where we might be headed next, but will mention important levels for QQQ/DIA in the cheat sheet at the end.

I was expecting SPY to pullback after testing $455 last week before resuming its uptrend. However, not only did it take that level out comfortably, it blew past $460 before pulling back. This is a very bullish development. In addition to that, the price/action that we saw on Friday adds to my conviction that this was just a shallow pullback and we resume the uptrend from here.    

What to watch for in the coming week

  • Full Bull: If we take out $460 again next week, expect this rally to pick up steam.
  • Deeper Pullback : If we fall below $445 (200 day SMA and support), expect a deeper pullback to $440 levels.  
  • Bearish: Bearish scenarios will only come back into play if we fall below $435 so I am not entertaining them at this point.

IWM observations (Now Bullish)  

I had projected that IWM will test $210 as early as last week. It not only did that but took $210 out with ease before giving up some of its gains due to end of the quarter volatility. IWM is now officially in a Bull Market. Any pullbacks are buying opportunities. If it pulls back to $205 next week, I might take a trade on it.

Bitcoin (About to start a bull cycle)

We have been using Bitcoin as a measure of the market’s “risk-on” sentiment and it has been rangebound between 35k – 45K since January 1st. It blew past $45k last week which is extremely bullish in my opinion. Not only did it do that, it made another attempt to take out $48K area which if crossed, should put Bitcoin and other crypto-currencies into their next bull cycle

Portfolio Allocation:

For new members, you would want to trade at 30% allocation. For existing members, who bore the brunt of this deathly correction, you will need to slowly keep stretching your portfolio to make up losses. I am personally between 55% – 60% portfolio allocation and very close to making up my losses from the last 3 months. The ETF trades that we took earlier this year didn’t pan out and that caused some damage to my portfolio. My daughter’s micro-sized portfolio blew up as it couldn’t handle the length of this correction. But any ETF trades which are expiring between March 15th until May end are in great shape and have the potential of not only recouping all my losses in the 1st quarter but putting me back in the green in the next 2 weeks. 

Key Takeaway: As long as we stay in chop city, try to balance your trades between bullish and bearish. Keep an eye on VIX. VIX < 18 brings a bull market. VIX > 24 is most likely not good news.