Putting The Pieces Together

Market Update July 25, 2024

The Markets

With today’s morning selloff, SPY and QQQ breached the 50-day moving averages. At the lows, SPY was off roughly -5% from recent highs, and QQQ nearly reached the often-cited “correction” move of -10%. At its lowest point, it was down -9.5% from the July 10th high.

These moves often seem quick and unexpected. But they don’t have to catch you off guard.

No one knows the future. And I have yet to find the magic chart that tells me exactly what will happen next. But if we listen, follow the price action, and stick to our process, we can identify clues about which outcomes may be more likely. So, let’s revisit the process and analyses of the last several weeks and see how it progressed.

To do that, some quotes and clips from recent articles are included.

---

July 2 - Is The Market Getting Tired?

In early July, market breadth was being heavily scrutinized. That article examined the percentage of SP500 stocks above the 50 and 200-day MAs and the action in some of the more small-cap focused ETFS, concluding:

There is no overly bearish information here, but it’s not exactly representative of a market that is firing on all cylinders.

A clue that maybe there were some slight cracks beneath the surface.

July 8 - Monday Market Update

The following week, elevated uncertainty while awaiting testimony from Fed Chairman Powell and CPI/PPI was noted.

Trim into strength

Raise stops along the way

Remain cautious in starting new longs

Potentially add some tactical shorts or otherwise hedge long positions

July 11 - Small Caps Finally Get The Breakout Move As Large Caps Get Sold

Signals to hedge or take a tactical short worked out.

SPY … producing an attractive tactical short trade setup. That setup worked very well as the large-cap index put in a bearish engulfing candle on the day.

QQQ … another profitable short trade as the short-term momentum leaves the index.

Keep ready and see how far the large-cap move lower can go.  QQQ has already touched its 8-day MA.  SPY isn't far behind.

While that is happening, we should take time to refresh the shopping list for new long ideas. Identify names, levels, areas, and potentially attractive buy points. Then, write the contingent trading plans and set alerts to know when the setups trigger.

July 15 - Rotation Continues As Small Caps Flex Their Muscle

Then, we saw further evidence of extension and the possibility of a pullback as SPY reached its Fibonacci extension target.

Though positive on the day, the major indexes show signs of exhaustion and/or extension.

Some rest could be coming.

Keep refining the shopping list for large-cap stocks. Several Mag 7 names (AMZN, MSFT, NVDA) are testing their 21-day MAs. Many other recent leaders are taking a break or showing signs that they may do so soon.

Watching, waiting, preparing.

July 18 - What Happens After Extension

On this day, IWM, on the heels of a historic surge higher, was starting to resolve its degree of extension.

Could be more short-term downside (for IWM) ahead.

It’s also possible for it (SPY) to move deeper and closer to the 50-day MA. We have not yet seen a 10% correction for 2024 — something that happens once a year on average.

Manage risk and see which bounces hold.

Monitor potential support levels in the names you like.

See how names behave as they reach those potential support areas.

Watch for indications of returning strength while looking to add new long positions or add to existing ones.

July 22 - Revisiting Volatility

Most recently, it was pointed out that the VIX volatility index had risen sharply. A condition that often leads to more erratic price action and selling.

The VIX … jumping up 38%.

If it moves above and stays there, perhaps it would be worth keeping a closer watch.

Many names have gotten a bounce from noted support levels. Now we see if they hold and continue. Or do they come back down to test the lows again?

These bounces give the tactical, cash-flow-oriented trader a chance to take some profit and reduce the position size. The emerging political uncertainty and increased volatility will have some traders thinking similarly.

Note: today’s action took the VIX +82% from the recent low

There were signs.

If noticed and acted upon, those signs kept this morning’s selloff from becoming a scary event. Instead, it was an opportunity that we’ve been looking for.

Today

From the morning roadmap:

SPY has a gap from $537.01 to $539.59. That range could be a bounce area. Above, the 5dma (blue lines) and WTD AVWAP (purple lines) were $549-$551 at the close. Also, a gap in that area for added potential resistance.

QQQ has a gap below $455.58 to $456.77. Above, 5dma and WTD AVWAP $475 and $477. Maybe some added resistance near $468.

Here’s the price action on side-by-side 30m charts.

Gaps were filled, and resistance levels were touched.

---

The Charts

SPY nearly filled the gap before the day’s powerful rally. Then, heavy selling into the close took it back below the 50-day MA and nearly to the morning's lows. RSI has lost the bullish upper half of the range.

No follow-through. Which tells us it's vulnerable to more downside.

Reaching the -10% correction level would mean a move below the 100-day MA, the $524 pivot area, and down to the YTD AVWAP, near $511.

QQQ closed the day beneath the $460.58 after nearly touching its 100-day MA this morning. It’s down approximately -9% after just missing the Fib extension target a couple of weeks ago. RSI has nearly reached an oversold reading.

The next potential support level beyond today’s low and the 100-day MA is the YTD AVWAP, just under $442.

IWM continues to carry the torch, closing back above its 8-day MA. It’s the only major index still above all the key moving averages.

DIA rallied to its 8-day MA today, where it was quickly rejected and sent lower to close in the pivot support/resistance zone (shaded blue area) and just above the 21-day MA. RSI is still > 50%.

TLT continues to consolidate with all the key moving averages within a 1% range. It could move lower to retest the trendline (highlighted area). Or it could break higher from this range and revisit the June highs. TBD

DXY US dollar futures continue to be contained by a stack of AVWAPs and MAs. The 8- and 200-day MAs, as well as the YTD and swing-low AVWAPs, are all very close by.

BTCUSD managed to preserve its bounce into the afternoon, giving a hammer candle just over the 100-day MA. Now, we can see if it confirms by moving higher tomorrow.

---

The Trade

This may not be over yet. The charts show potential for more downside ahead.

In the morning, we have the ever-important PCE data. That is the Fed’s preferred inflation gauge and a key component in interest rate policy decisions.

The number could send stocks in either direction. Small caps will be the most affected.

Stay ready. Stay nimble. Stay patient. And stay diligent with risk management.

---

Elevate Your Trading

Education, training, and support for your Trading Adventure.

Options Trades - Weekly trade ideas are delivered to your email or text messages in language you can easily understand.

Check out EpicTrades from David Prince and T3 Live. Epic Trades from David Prince

---

Community - Are you an experienced trader seeking a community of professionals sharing ideas and tactics? Visit The Inner Circle, T3 Live’s most exclusive trading room - designed for elite, experienced traders.

The Inner Circle at T3 Live

---

Prop Trading - Or perhaps you are tested and ready to explore a career as a professional proprietary trader? 3 Trading Group has the technology and resources you need.

Click here to start the conversation:

T3TradingGroup.com

---

The Disclosures

***This is NOT financial advice. This is NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.

Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”), an SEC-registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.

Statements in this article represent that person’s opinions only and do not necessarily reflect those of T3TG or any other person associated with T3TG.   

Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed. This may reflect the financial or other circumstances of the individual, or it may reflect some other consideration. Readers of this article should consider this when evaluating the information provided or the opinions being expressed.

All investments are subject to the risk of loss, which you should consider in making any investment decisions. Readers of this article should consult with their financial advisors, attorneys, accountants, or other qualified investors before making any investment decision.   

POSITION DISCLOSURE

July 25, 2024, 4:00 PM

Long:  NVDA, SOXX

Short:  

Options symbols are denoted as follows:

Ticker, Date, Call/Put, Strike Price

Example: VXX1218C30 = VXX 12/18 Call with a $30 strike