Market Overview

As we have been saying for a while, investors have been waiting to hear news of a vaccine/stimulus in order to pour in with the massive amount of capital they account for. 

That time is here/around the corner. Vaccine news has been circulating and expectations just seem to ramp up. 

Curious about the actual reality vs. expectations side of things, we decided to take things into our own hands. We went to various Walgreens and CVS establishments and kindly asked the pharmacist if anything has changed in their workflow. Surprisingly (as answers have been stale before) the answer this time around was different: They are preparing/running drills for vaccine distribution as guided by the CDC. That leads us to believe that unlike other times when vaccine news has amounted to nothing, this time around there might be some bite to the news. 

With that being said, the rotation out of technology and into value seems to have begun. Investors are pouring in the markets once again on the news as well, and tech is the last thing they want to buy because of the bloated valuations. That is not to say that technology is doomed to drop and crash forever, but merely saying there are going to be much better plays than tech coming up should this flow out of tech and into value continue. 

These are very good things for the long-term outlook of the market. 

On the political front, while the Democrats have won the presidency, the Republicans have gained 7 seats in the house (So far) and as of the time of writing this piece, still very much in control of the senate. 

Being able to predict how each party would act and what their power would be in decisions regarding stock market, law, taxes and such is important when trying to play long term stocks/investments so we advise keeping an eye on the outcome. 

ES [S&P 500 FUTURES]

Let us discuss first things first. After the massive run up that lasted for an entire week, we finally got a breakout on ES last week. The chop pattern was between 3300 and 3500 (Give or take a few points) and then finally with an explosion in value due to vaccine news the index broke out of its trading range. 

As is tradition, when things are starting to look good, many previously hidden winter animals poke their heads up on various social media fronts and start calling for the next Armageddon. Others call for the next bull market that will last 3 decades.

We will do neither.

 It’s important to look at the situation at hand with no biases, and simply accounting for all possible outcomes. With that being said, we continue on. 

On the daily, as depicted on the chart, we broke out in a big way resulting in a sort of a blow off top. Upon gravity doing its thing we retracted back but only to test the breakout. Buyers showed up in a big way, and pushed the index futures up to a level of 3580, breaking out of the weekly chop.
As things stand on the hourly 3570 would be the retest of the breakout. Accounting for slippage as long as ES holds 3550-60 on a breakout we believe it is going to hit 3630 again. After that we might get a pullback again but of course, as always, nothing guaranteed.
On the bear side as long as 3500 remains intact there is nothing to accelerate a selloff. If 3500 gets taken out, then we recalculate. 

On the flow side there are 366 calls long for a massive bullish squeeze, and 349 puts long for the flipside. 

Darkpools: 353.39 ; 345.75 ; 338.30

VXX [IPATH SERIES B S&P 500 VIX SHORT-TERM FUTURES ETN]

VXX is just continuing on its downtrend as it always has been since the March bounce. All the pullbacks have been meaningless if you just look at the VXX. On the daily chart it has been bouncing up and down between a channel to an astounding precision from a perspective of technical analysis. If we just look at the VXX on the daily, we realize that the bull run that commenced in March was never really in any sort of danger at any point in time.
Looking up there is a big gap to close at 24-25 level.

An hourly DBD supply at 19.5 level and a gap to close at 20.2 as well.

VXX HOURLY CHART

NQ [NASDAQ]

Tech as mentioned has been showing weakness. NQ is still within the range of its recent chop unlike ES which was broken out of its range by value and no thanks to tech. As depicted on the chart we would need a break above of the current trading range to pursue any remaining tech squeeze but for now we are very cautious in this area. 

Currently sitting in a 4 hour demand and a 4 hour supply above just about lining up with the trend.

BOOKING HOLDINGS INC. [BKNG]

A sweep detected on BKNG for Nov 20 1890. Keep a close eye on these since they are relatively cheap and if it plays out they could pay nicely. Best guess for the reasoning behind the sweep is anticipation that the price would come down to test the beginning of the impulse. 

On the weekly you can see that BKNG has clearly broken out and with massive force at that. 

1890-1900 lines up with a retest of the breakout so if price should start heading down it could find its way there.

FACEBOOK [FB]

For the time being virtually anything above 280 calls for FB have been shorted. Puts are long down to 250 which indicates a selloff for one of the tech giants should the money flow out of tech and into value continue to shape the markets. There is a gap below on FB down to 230-235 level as well should a potential selloff accelerate.
For now the trend is intact with the low being bought into massively, should that stop being the case we can look forward to aforementioned selloff.

Supply above at 278-280 and 287-290 respectively.

GOOGLE [GOOGL]

Bearish flow for 1630 puts 11/20. While the flow is bearish GOOGL is not looking like it wants to give up. We do advise being very careful one way or another on this ticker. As it stands GOOGL is perched high above the previous breakout however there is a daily RBR 1630-1640 which corresponds with the flow, so should a selloff start that is an appropriate target.

WEEKLY TRADING TIP: Be Open Minded.

 As I go through writeups of indices and look at economic numbers and expectations the one constant I always adhere to is to be radically open-minded. In all reality, there is nobody that knows where the market is headed. Not even Wall Street “experts”…ESPECIALLY those people. Most “Experts” can’t see farther than their noses, if they could, there would’ve been more than 2 hedge funds profiting off the 2008 crash. There weren’t. They were all caught pants down, and not playing the role they would’ve liked to.

The same goes for people with a presence on social media. Just because somebody has a large following it does not mean that they have the foggiest when they speak about the stock market. Therein lies the importance of a community and finding the right one.

A community is not a place for “Analysts” to puff out their chests and for rather new traders to just swallow up the information as being the undeniable reality.

I contribute my success in the largest part to being open-minded. I always develop a working theory and challenge others to…well…Challenge it. Sometimes you will stick to your guns, and sometimes you might change your mind if you find a plausible theory that rejects yours and is rooted in more evidence. That is success. As traders it is not our job to always be right, nobody is. It is our job to make money regardless of whether we’re right or wrong and making sure we find out if we’re wrong before we act on our erroneous theory. That is where most people fail.

You must be able to: 

  1. Develop a plausible theory based on evidence regarding stock market movement. 
  2. Find people more knowledgeable than yours to check your theory against. 
  3. Admit when you are wrong and develop an ability to flip sides should you be proven wrong.

Wish you a successful trading week ahead, sponge in all the information you have, work up a plausible theory and stay radically open-minded.

Echelon Insight: Weekend Report Vol. XV