Not a whole lot of change in the S&P 500. Relatively bullish week but only by 16.75 points. Not much changed in the COT data either. Great indecision though overall it is a clear bullish momentum.
Still waiting on the stimulus bill signing and some improvement in the Covid situation to begin full rotation out of tech. This week’s rotation out of tech and into financials and industrials as we expected in the last newsletter was just a glimpse of what would happen should the aforementioned circumstances come to pass. Not much to say except for should we get a pullback we have some levels clearly marked on the chart where we anticipate there is a probability of the pullback stopping.
The top of the breakout on the daily sits at 3300 so that is a good level for probability of a bounce should we turn south. ATH is only 30 points away and as of right now we do not have any need of shorting this long term. Short term perhaps we can find some opportunities but we’d rather get long on a pullback and hedge. 3190-3116 below 3300 sits as RBR demand on the weekly, and the bull bear line is still at 3120. Should 3120 get broken and retested as supply that’s our indication of a possible reversal. Until then we play what’s in front of us and monitor throughout.
Darkpools: Above: 337.89, 338.80 ; Below: 335.56, 334.90, 333.00, 332.80
VIX futures are still selling off and currently in a supply zone. There is a possibility of a backtest at 25 level. Should 25 level be reclaimed as a buyer’s zone we need to be cautious, however until then VIX is well on its way further down.
Only concerning thing is that there is immediate demand at 21-22 and hedge funds according to the COT chart are showing a, albeit minor, willingness to buy VIX futures. Whether a hedge or not remains to be seen and we will be monitoring them closely throughout the week.
However, the perspective of demand + hedge funds being somewhat long could be a valuable insight to protect us against a pullback. We will include the chart and the data for you to see and assess the situation for yourself.
Darkpools: Above: 26, 26.50, 27, 28, 30.50 and 32.50 ; Below: N/A
The Dollar had a nice bounce this week, however it stopped at the supply area we expected it to stop. This is going to play out 1 of two ways.
It is going to stop into a higher low and then break off the supply heading further up to 94.7 – 95 area of it is going to breakdown the demand completely and seek out the next level of liquidity at 91.5 We are still keeping the Dollar longs which doubles down as a defensive play, and having taken half of the profits out we are in no danger of this trade going red.
For now still long on the dollar unless the demand breaks. COT data has not changed in any major way and hedge funds are still long, albeit very minor and on the fence.
Darkpools: Above: N/A ; Below: 25.16
Gold hit a pocket of liquidity in the daily demand and bounced from there. Buyers showed up and pushed it up higher but it is far from clear. DBD supply on the daily at the 2037-2060 level. On a smaller hourly timeframe we have a DBD supply at 1972. We would like to see that get converted into a buyers zone, and should that happen gold should leg up to the next level up which is 1997 give or take a few points.
Should that happen we will advise from there. A higher low above 1874 could be a buying opportunity as well but should that level break gold could leg down again so should you decide to trade gold it is going to require patience to ascertain its direction. On the COT report we see fundies losing interest in buying at these levels and distributing throughout the week. Still net long, but pulling back. Small specs bought the dip entirely. Commercials have no interest in buying at these levels.
Darkpools: Above: N/A ; Below: 183.10, 182.50, 182.45
Silver had a nice bounce right out of the weekly RBR demand. We called out the exact bottom in last week’s newsletter report days ahead of time. Congratulations on everybody that caught it. Right now we see a supply up above at 28.4 – 29.3 levels.
On the COT report, the same as gold we see fundies pulling out. Still net long so we are being careful but subtle signs of distribution. Small specs bought the dip entirely. We would like to see the 23.7 low being held if Silver is to continue, and ultimately the supply above being taken out and turned into a buyer’s zone. Should the bottom give out and get back tested as a seller’s zone silver could even pullback into 18.8 levels. We will be monitoring closely to see what happens.
Darkpools: Above: 24.90, 25.00, 25.10 ; Below: 24.48, 24.30
With the stock split coming up on Aug 24th there’s a lot of uncertainty with the rotation coming out of Tech. Earlier last week we were seeing pricing of 470-475 for Aug 14 but that quickly diminished as we saw a whole swath of QQQ puts being traded. Analysts and members benefitted from QQQ puts this week as well as AAPL calls and a AAPL hedge into Thursday. This week we’re seeing a very wild swing with AAPL calls long to 520 and puts long down to 410. A large bullish bet traded on Friday for Aug 21st 410p and Mar 21st 550C. Buyer is hedging for a move either way with 2000 contracts each.
Darkpools: Above: 459.50; Below: 430, 425, 400, 395, 380
AMAT is continuing on its bullish trend and tested the previous highs last Friday. It hit a huge supply area and pulled back quite a bit. IF 66 area continues to hold, we could see price action squeezing to the tops again and then a breakout provided we see the momentum continuing to the upside. Break below 66, we could see chop above 25 ema or even a test of 50 ema. Based on the options flow this week, heavily leaning bullish with 70 strike calls being net long over 10k Sweep contracts.
During the week AMZN was lackluster at best as it continued to consolidate. Resistance at 3296.64 and currently riding the 13EMA on the daily. If it doesn’t hold support here, likely to come back down and test 2900-2888. If the support holds, and it breaks 3296.64, can expect to see new all time highs to the 3545.20 region. Option flow is pointing to a move back to 3200 by Aug 21 and if not, back down to 3100 if not 3080.
Darkpools: Above: 3160, 3170, 3190, 3200, 3215; Below: 3110, 3100, 3080
Approaching earnings releases net month, we anticipate these cruise names have some catchup to do. Look for a break above 50 ema for bullish continuation. On the options side, we see increase in implied volatility of the options which traditionally shows a big move is in the offing. For this week expire, Call options are heavily long for 15, 16.5 and 17.5 strikes, consecutively we saw strike options are being shorted.
At the start of the previous week, we saw airlines breaking out of the monthly ranges and catching up a bit. DAL broke above 50 ema and since then falling back to retest the 50 ema range again. With relief, covid and stimulus news, airlines are bound to catch up to the broader market. Options flow points to bullish activity with 28 and over call strikes, 27 put strikes are net short for this week.
FB consolidated nicely over the week after coming down from the 278 highs of last week Thursday into Friday. Market makers took a strangle with 7,750 contracts each of Sep 18 265C and 265P. This social media giant could very likely continue to storm to new highs and test an area of 300/share. Fibs are showing strong resistance at 271.65 and 289.21, over that and FB long term could get to 311-315. Option chain is pricing a move to 300 by Aug28-Sep04, dated calls (i.e. Leaps) would be a good bet.
Darkpools: Above: 261.26, 261.40, 261.75; Below: 250
JPMORGAN CHASE & CO
The whole week was anticipation of rotation from Tech into Financials (XLF). There was a surprise Thursday overnight into Friday morning that not even WallStreet predicted. A large rotation back into tech which brought QQQ back up from the low 271 to 273. At the same time on Friday evening, Warren Buffett announced that he pulled and liquidated his stake in JPM causing the stock to slide from 103 to sub 102. Stanley Freeman Druckenmiller of Duquesne Capital announced a few moments earlier he increased his stake in their 13F filings.
Option chain saw a swarm of calls being bought and sold from 103 to 111 and a wild 115 for Aug 21. This will be a close watch as analysts and members have positions in JPM for this week with 105C. Who will win, Warren Buffet or Druckenmiller. Can JPM hold its ground and find its way to the 105-110 mark. Or will Buffet presence cause the stock to slide further. Fib retracements on the weekly chart show that as long as JPM holds 100.00, a move back to 116.47 is possible.
Darkpools:Above: 103; Below: 102.41, 100.99, 99.75
MPC is holding the 50 ema line on daily and past few weeks, we are seeing accumulation patterns on the daily chart. Last week energy names have been outperforming the broader market and we anticipate it continuing this week as well. This week, we see a potential to retest the 200 ema area around 41-42 and subsequently previous high of 45. Break below 36, potential to fall back to 32-33.
Micron has underperformed the broader semiconductor market and broke the 200 ema recently on daily chart thanks to MU CFO lowering guidance on upcoming earnings release. However, last few weeks, we have seen stock is being accumulated between 49 and 52 range. Given the recent drop, we expect it to pull even lower to the 42-43 area before it starts to ramp up for earnings play. On the options side, this week, we see that a lot of calls between 50-57.5 strikes are still net long and leaning bullish and puts are net short on 45-49. If the 45 area holds, we anticipate there is potentially a bounce back to the 50 area.
On a fundamental side, Donald Trump first wanted to ban TikTok outright, and now seemingly wants to aid MSFT in the purchase of the social media platform. As a result market makers seem to be getting ready for the acquisition news with a 16,250 contract purchase on Mar 19th, 2021 210C. Weekly option chain is pricing a move back to 217.50 this week (likely a run up on AAPL before stock split) and a bottom at 205 if it can’t hold 207.50.
Darkpools:Above: 212.50, Below: 208, 207.75, 207.60, 203
Earnings are coming up this week and NVDA is in “the sweet spot”. A couple weeks back we advised resistance for new ATH at 450.60, well, NVDA is now at 462.56. On the daily trend based fib, NVDA doesn’t have resistance until 487.24 and we believe that’s why Market Makers are long on options up to 500. Should NVDA miss earnings, or provide a lackluster performance, the tape is pricing a move back down to 430.
Darkpools: Above: N/A; Below: 420, 417.68, 415, 409, 405
Third semi name that we are covering this week. ON is in a bullish trend and this week we see options are positioned heavily bullish over 22 strikes. Call strikes, 22-25 strikes are net long and front month 18 and 19 strike puts are being shorted. As long as the 22 area holds, there is a potential breakout in the offing and test of previous highs at 26 area.
With the latest news on PDD being excluded in Nasdaq 100 is major, beginning Aug 24th. Also, PDD is expected to report earnings this week. There is a potential to retest 50 ema on daily just like before, but this one can fly right off the bat this week. Based on the options flow, 100 call strikes are heavily net long. Put strikes long on 86 and 83 strikes.
Snapchat has dropped quite a bit from its previous high to the 21-22 area. We are seeing sell side activity being subsided last week. Look for a break above 25 ema this week for a restest of previous highs. This week expiry, we see that most of the call strikes from 22.50-26 are still net long and 21 and 22 strike puts being net short. On the swing side, for September and October expiries, we saw heavy call buying on 22, 23, 25, and 26 strikes.
Walmart reports earnings this week and the recent run up faces a big supply zone at the tops of 132-134 area. With Walmart + delayed and Walmart underperforming retail sector by a big margin, we anticipate a pull back is on the cards. Large options flow point to a bearish outlook this earnings release.
Puts are net long from 135 to as low as 125 strikes. Calls are net short for 135 and 136 strikes. On the flip side, break over the 133-134 area (previous highs), WMT could potentially catch up to the sector performance possibly with targets around 150 area. Option flow points to calls net long for 140-150 strikes.
Watching the rotation into financial sector, these past few weeks, we have seen nice accumulation below 26 area and WFC is prime for a bounce back. With the recent run up in financials, WFC has been lagging behind with a juicy upside potential. Look for a break above 50 ema at 26 area for a shift in trend. Options flow showing heavy bullish activity, with long calls between 28 – 31 and short puts 25, 25.5 for this week.
On the swing side, monthly expiries of September, October and Jan 2021 30 calls are traded heavily.
INDICATOR OF THE WEEK: Stoch Fibs
Last time we had the autofibs that plot based on specific price action H/L within a certain timeframe. This one paints fibs according to the H/L of the Stochastic indicator for the specific time period you select to offer you a different perspective.
WEEKLY TRADING TIP: Risk Reward Ratio.
Oftentimes this very important rule is completely ignored by traders. Risk to reward ratio. For us the very smallest R/R ratio we’re willing to even begin to consider is 2:1. Oftentimes even 2:1 is quite honestly not enough. Most traders on the other hand go about trading in the opposite direction. They take out profits at 20% but end up holding trades that go down 80% and hope for a bounce that most of the time doesn’t come.
When the bounce traders are hoping for in this scenario does come however, it does even more damage than if the trade was a complete loss. Why? It teaches you that it’s ok to hold. That it’s ok to have a 80% drawdown to cash out 20%. Things will always somehow work out in your favour. Unfortunately, that couldn’t be farther from the truth. Losses are ok. Losses that take out your entire account over time because they’re far larger than your wins are not ok. Your largest loss cannot exceed your largest win. Focus on R/R.
“5:1 Reward/Risk Ratio allows you to have a hit of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time and still not lose.”
– Paul Tudor Jones