U.S. equities are currently trading sharply lower in the pre-market session & have taken out the support levels discussed on the 1-minute charts of QQQ & SPY in yesterday’s video, in which I stated would likely cause another test & quite likely a break of yesterday’s low. After booking profits on the bounce longs yesterday, I still think it is best to stand aside an let the dust settle after the sharp price swing that we’ve had recently. The fact that we are still slight above the 98-100ish key support zone, which I recently referred to as a strong magnet/black hole for stock prices, & have yet to revisit it is one of the main reasons that I decided to close yesterday’s bounce longs. On the flip-side, adding new shorts or remaining aggressively short here while so close to such a key support zone with bullish divergences in place on the 60-minute time frame also carries an unusually elevated risk of being caught in another very sudden & sharp reversal like we had yesterday. Add to that the fact that today is not just a Friday (i.e.- you have two extra nights of overnight risk, should you take any positions home today) but it is also options expiration.
Factor all that in & I can’t think of a much better reason than to keep things light until next week. Yes, the market will probably provide a very profitable gap one way or the other on Monday & there will almost certainly be some sharp & potentially profitable intraday swings today due to the pending large gap down plus the fact that today is opex. Trading is all about managing risk and with a near 50/50 chance of any gap on Monday being up or down (as of this point IMO), going home positioned aggressively long or short offers a very poor R/R and exposes a trader to unnecessary risk. I think the easy money was made yesterday, at least for my trading style & how I read/trade the charts and as such, I won’t be doing much today other than updating a few of the trade ideas that recently hit their profit targets.
Longer-term swing & trend traders that have positioned short for what could be the early stages of a new bear market might consider sitting tight with relatively wide stops in place while more active swing traders shouldn’t try to force trading unless you are nimble, experienced and comfortable trading with this type of extreme volatility. One a final note, I have mixed thoughts on whether or not the positive divergences on the 60-minute time frame will play out this time around for a multi-week bounce trade or not, assuming that the 98-100 support level holds (even with the possibly brief overshoot/false-breakdown scenario that I’ve discussed recently). As always, I am continually monitoring the charts so if I see something compelling or decide to sudddenly engage the markets, long or short today, I will communicate my thoughts asap. Good trading, be careful & remember that with increased volatility comes over-sized gains AND losses. As such, make sure to adjust your position sizes & stops/profit targets commensurate with your risk tolerance.