The thing that is not supposed to happen is happening. We have been saying for the past 2 weeks that the market has been trading a bit odd. That is reflected in the COT reports. You see, 5-6 weeks ago the hedge funds flipped short and small specs kept piling on long. However, since then we see something peculiar happen, hedge funds in the last two weeks buying anything and everything. As things stand, both hedge funds and retail are extremely long, and as far as we can see this a very rare event that both parties have been in such an agreement. The fact is ES is broken out, retested the breakout as a new buyer’s zone, and held it, so there is no reason to jump to doom and gloom scenarios just yet, however, this does mean that we need to proceed with even greater caution than we have before. On the macro front, fundies are waiting on an agreement on the stimulus bill, as well as any news of decreased COVID activity they can latch on to for them to start buying value names aggressively with confidence and start rotating out of tech. For now, they are still very much overwhelmingly present in technology which, as things stand, is a very defensive play. SPX is pricing in just as bullish of a week with 3285C long for Aug 3, 3325, and 3370C for Aug 5. This all lines up with ATH for mid-august at 3400. Where it gets troublesome is Aug 14 onwards. There’s a $6.8M trade on spx 3200p for Aug 21. In itself it doesn’t mean much, however, there is that 500 million dollar accumulated trade for VIX calls for August 21 which we believe is 50 cent because of the price of the contracts at purchase, so things can most definitely get wobbly soon.
On the technical side we have:
Monthly – On the monthly ES there is an RBR continuation structure at 3025-3080 zone. Should the market seek to reverse course we would be looking at that structure for potential buyers. On the upside there is the ATH of course.
Weekly – On the weekly side we have an RBR at 3200-3220 which is a continuation pattern. It doubles down as a retest of the breakout so it is an important level we will be keeping an eye on should price decide to turn that way.
Hourly – Last but not least on the intraday chart we see ES trying to breakout of its current trading range. We would like to see a clean break above current levels and a retest of the same to establish it as a successful buyer’s zone.
On the VIX futures front, there is not much of a change in the COT reports. Still not a great interest on the side of the fundies but that doesn’t mean we just forget about risk. On the technical side, VIX futures are still holding the top of the trading range. Should we continue to squeeze up on the S&P we see VIX potentially hitting levels of 12.5 – 13. On the upside, there is a weekly DBD at 41-45 and if that gets reclaimed all hell will break loose again. For now still in overall indirection as you can see on the chart, indices have been consolidating for a while however we do have a definite breakout and a retest. The only concerning thing is VIX futures are not giving up the lows..Immediate supply at the 29-30 area was backtested and rejected on Friday so unless 30 gets reclaimed as a buyer’s zone VIX futures will continue to selloff. We will continue to monitor as the week goes on.
As we suspected, last week’s buying action on the U.S. Dollar on the side of the hedge funds has continued. Small specs still net short on the U.S. Dollar. Because of this data we are not even remotely interested in shorting the U.S. Dollar as of right now. The Dollar had a perfect bounce on a weekly RBR as depicted in the chart. On the daily timeframe it is sitting in supply right now and below the weekly RBR there’s two more daily demand continuation structures. We keep a very very close eye on a Dollar long. We will be watching it throughout the week and beyond but overall we think there is a high probability of a bullish Dollar.
Not much changed in the COT world on gold. Small specs going further and further bullish however there is a small indication that hedge funds are beginning to unwind their position. They are still very much net long so that is not to say that gold is going to crash tomorrow, simply that they have no interest in further buying gold. Clear skies on gold so no interest in shorting it for now, maybe a scalp or small swing long on a pullback. Will watch the COT data through the weeks as it develops.
Mixed bag on corn data. Commercials loaded up a few weeks ago and still riding those positions. Hedge funds still net short however starting to perhaps perk up a little. Small specs chasing the trend as always almost flipping to net short. On the technical side corn is sitting in a demand where the most recent impulse began and is testing it as a new buyer’s zone. It also has a confluence with a trend. Should these levels marked on the chart hold corn might squeeze again, if it falls below however that notion is invalidated.
Option flow top 475 possibly 500, 430p shorted so it should stay above. With 4-1 split coming, MM are trying to keep this close to 500 to keep equity price 100-125+ However should it come down there is a 4-hour RBR sitting at 403-410 which is an area of interest to us and could potentially be looking to play it in the future whenever it gets hit.
Massive beat on ER but the follow-through was lacking. Option flow had odd volume on 3400C for 8/07 and 3600C for 8/14. Currently backtesting the breakout at 3150 level and we would like it to stay above this for continuation up. Immediate supply above at 3190-3210 level and if it manages to get above and hold that as a buyer’s zone then it can squeeze.
252.5p shorted, all calls from 255-280 are long. Broke out of trading range post ER and retested the breakout as a new buyer’s zone. As long as it can hold above 250 FB has continuation in it.
1550C long with odd 1460p long. 1550 lines up with closing the gap and testing the top of the selloff whereas 1460 is a retest of the Friday low. Below that there are some more demand levels of interest all marked on the chart.
If the 420 level can hold, NVDA is pricing 440-460 all calls long. If it can’t, 417.5 and 415p are long also. 420 level is a 15-minute demand turned supply turned demand again so suffice to say is where the warzone is. It was retested as demand and it held for now. Below that is 415 RBR which lines up with the put flow.
Not a lot of confidence. MM bought calls but closer to the bid. Could get to 525 but conviction in dropping to 475 first before continuing. On the technical side, NFLX is at the end of a trading range wedge and we will be looking for a breakout or a breakdown and hold above/below to play this one.
Expectations are a beat with 205 long for 8/14. If not impressive could drop to 192.5. Still stuck in a trading range and chopping back and forth within it. RBR at 187-188 area.
170C long 8/14 and strangely enough 245C are short for 8/07. On the technical side ROKU is still stuck in consolidation with no indication of a direction. Volume analysis is not showing any clues however the buyers clearly step up every time ROKU gets dropped to support it. Should it fall out of this trading range there is a daily RBR at 130-135 that doubles down as a retest of the most recent breakout. Interestingly enough even though the volume is larger on the buyer’s side whenever ROKU tries to breakout it never succeeds to do so.
INDICATOR OF THE WEEK: Auto Fibonacci
For this week we picked this indicator to share with you: https://tos.mx/p73gEBq
The indicator for this week is Auto Fibs. This indicator automatically draws Fibonacci lines top to bottom wick to wick on whatever time frame you are currently at for whatever time interval you have selected. When you switch to a less/more extensive time interval and new tops and bottoms are viewable the lines automatically adjust to the new scenario.
WEEKLY TRADING TIP: Learn To Lose Money In A Constructive Manner
Sure…Everybody thinks that they are God’s gift to the market and they will never incur losses. As a matter of fact that is the mindset that incurs even more losses. In the mind of the retail trader every loss is a personal insult. You need to flip that thinking upside down.
Losses become personal only when a trade is let go beyond a point of comfort. There is not a single trade in this world that is worth more risk than you are comfortable with. Our personal rule of thumb is do not risk more than 2% of your account on any one trade. Meaning if you are operating with a $5,000 account you should not be losing more than $100 on any one given trade. If you put up a $1,000 position on such an account, then your drawdown should be no more than 10%.
When you minimize your drawdown, but let your runners run and create trades that are net more profitable than your losers, then you have the luxury of viewing losing trades constructively. What do we mean by that? When you take the emotional factor out of losing trades than losing trades become your biggest weapon. You can go back and review them with a clear mind. Why did you lose? What did you do wrong? Is there anything you could’ve done better? That way you avoid making the same mistakes as last time. However, if you have a $5,000 account and you leverage and lose $4,000 on a trade then it becomes near impossible to review and learn from the trade in a calm manner.
Stay safe and learn to lose in a constructive way.