Pullback likely now, but bulls may have broken.

4100 area looks like ideal "Buy the dip".

Have been unwell recently and had to spend a some time in hospital (Nothing too serious) and given I’ve not been too well and the market has been mainly flat we’ve just been waiting to see some sort of significant move to make any sort of significant updates. We may have this now- the last rally “Hit different”, as the kids say.

Let’s diverge a little from our standard format of looking SPX trade plans and then using these as our main guide for risk on/off assets and instead check up on the potential “Canaries” - the things we should see failing in bull trends if a bear in play (And look at how they’ve not yet failed).

NVDA

While I have pretty much no idea what this company does, it was flagged up to me as interesting when I first seen all the extreme bearish sentiment on it a few months back. It became most interesting for me when we got up to the 76 fib of the 2022 drop, which is when we posted analysis on it.

NVDA has now managed to completely run the 76 fib and is trading at the 86 fib.

86 fibs are rarely a good time to buy (Strong chance of getting insta-rugged, even if it just a pullback to the 76) but it’s a really good time to plan to buy a dip. Here the default rules of this strategy is to look for dips to the 76 or 61 fibs. Sometimes this comes in the form of a double test (Test 76, rally, drop from 86 back to 76).

At this point in the bull continuation pattern we’d be looking for a move to make near term bears (Many of whom would be squeezed in the last rally) thinking they got spiked out and getting back into their shorts. Usually a fast move, often off a slow range and presenting a crash-like move relative to recent action.

AAPL

AAPL has broken the 76 fib. Really big try and fail for the bear here. Usually I find this type of try/fail represents a “Spending” of all the bearish pressure and the second breaking of this willultimately lead to a bigger breakout(Although often after a retracement).

We’ve been following a version of this type of signal in the SPX over multiple months. Here’s the spot where AAPL may be. Having made a break, setting up a sharp drop and then it will be a strong rally again.

MSFT

Still sits in an indecision area. I’d not form any strong bias based on this chart alone but in the context of the broader market this may be forming a 76 break. Marked in the bull/bear plans for this

.

SPX

Now to SPX. First, let’s see where we might be inside of a macro move. Several months ago we posted this plan. Highlighted is where I think we would be in this.

We dipped, supports held and then we’ve been in a tight range specifically while we’re at the previous high.

Very much acting like the forecast (Granted, I thought this range period was going to be 5 trading days, it’s been more like 5 weeks - I think we traded 7 days consecutively flat in SPX during this. But outside of the time estimate, which is always hard, the price move is fairly as expected.

The original model for this was derived from a like-for-like move in SPX as we had in 2007. In the 2007 market, we’d be in this area.

And while we’ve been quiet while the market has been messy, we’ll be very active when if we get into optimal trading conditions of a strong breakout.

4400 - 4600 remains the target area for this bull move if it comes. The range has not changed the actionable levels we have.

Actionable Trade Plans

With all the macro work in place, it’s basics now. Really the hardest part here is being patient while it chops. But in a flowing move we have simple Elliot corrections, 76 supports and bread and butter trend stuff. We want to look for a confluence of three things.

1- A big 76 correction of the recent rally.

2- An obvious point stop losses can be hunted on longs.

3 - Market displaying crashing action into this zone.

We can define 1-2 here.

Which makes our implied trade plan as so:

Contingency Plans

I have a cautious short bias at the moment. It looks like an easy short (In that shorting looks scary and that’s usually when it works) and I am taking short positions today at 4200 (Time of writing). My stops on shorts are 4266. Some spike out tolerance (Butterfly) is needed here, but not much. The high should be about in if the pullback is coming (Or absolutely in)

.If we break over here I’ll buy with tight stops and try to follow easy momentum. I dislike doing this, it feels “Chasey” - but at the same time, if we go into a no brainer higher lows trend, that’s ideal conditions to be long. Suspend disbelief, buy and hold until structure breaks.

Bear

Hard to support the swing bear move now. During the last rally we took out the big 161. Could be a spike out, and if so here’s the projected bear move.

For a number of reasons, this no longer feels like the right bet - but this does come back in as a potential plan if we break the supports in a drop. Break under 4090 would trigger an updated bearish plan. There’s really not much beary to talk about while we’ve above 4100.

Much in the same way bears could protect themselves from a bull move buying into the panic a few months ago, bulls can protect themselves from a bear move by shorting in this zone. If we then drop 100 points we can lock profit and this bankrolls the bet on the long (Stops can be trailed on shorts for a break).

Summary

If we can sustain a breaking of the 161 we “Should” hit the 76 and we should hit it fast and hard. Preparing for this move is the primary plan

.

We need to make some sort of break to put the swing bear case back on the table. I can make a really good case for getting short today but it’s been a while since I felt the macro bear case was well supported (Being posting bull stuff for ages now). If we’re not seeing these breaks, we’re not seeing bear conditions.

Toughest trading path to follow IMO if a simple breakout. Much easier to buy a crash move than a breakout, from my perspective.

However, if this comes then the simple move is to bet on momentum until it fails.

• Optimal strategy is set limit orders for 4100 long. Stops 4077.

• Short put spreads into this area if crashing action.

• Wait for some range/IV crush and buy OTM calls.

This is the primary plan. Short to 4100 and long from there.

This plan fails if:

• Price goes over 4260 (Short fails).

• Price holds support 4140 (Possible alt low- protect short profits here).

• Bears break 4070 (Abort!).

I suspect Q3/4 will be much more interesting than Q1/2. I think we’re going to see some real fireworks in the second part of the year- but in December 2022 I thought we’d see a sharp sell Q1/2 of 2023, so it’s not like I’ve not been wrong before. But for those who’ve kept their power dry, soon it maybe time to fire off some shots.