TheChartEdge

Looks like a V

Marcus Grant, CFTe — Thu, 15 May 2025 09:05:39 GMT

The recovery in the S&P 500 has been impressive. Similar to the COVID crash and recovery.

Here’s a chart of the COVID crash and recovery.

The black line is the 20-day SMA, the green is the 50-day SMA, and the red is the 200-day SMA.

And a chart of today.

As they say, history doesn’t repeat but it often rhymes.

As always, I am open to all possibilities. But if we are going to make new all-time highs, I think a fast pullback of around 5-6% or so would add fuel to the fire, as it did in the COVID period. It would shake out late longs and weaker hands, and get the bears excited to put on or add to shorts. If it happens, I will be looking to add long exposure.

So, what am I specifically looking for? This isn’t a prediction, just a possible scenario, which if it occurs sets up a good risk/return opportunity.

If we get a quick pullback to around 5580 and recover within a day or 2 above 5610 (this is the S&P 500 futures) I will go long in size, with a stop under 5580. If this scenario plays out it offers a great risk to return opportunity.

Updating some of the other charts I discussed in previous notes, they are all doing what one would hope if you’re bullish.

Credit spreads have come in big time.

VIX is under 20.

XLK/SPY (Tech relative to SPY) has repaired the damaged and this now looks like a failed topping pattern.

As does SMH/SPY (Semis relative to SPY)

SPY/EFA (SPY relative to developed markets outside the US)

This all looks great. But I have a bearish position on as well. It will act as a hedge to any new longs I enter and also profit if all goes to shit again (which may happen, always be open minded). I have put options on the DAX, with a strike price of 23,000 that expire on June the 20th.

Here is the DAX chart, which looks like it could become a failed breakout. If not that’s all good, as the options aren’t that pricey, so again a good risk/reward and a hedge on any new long positions. Even if it pulls back to 22,300-22,400 it’s uptrend is still intact, but the puts will very profitable, especially if we get a quick pullback.

Stay open minded to all possibilities and manage risk tightly. The next few weeks will be interesting.

Cheers,

Marcus Grant, CFTe

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Disclaimer: The content provided in this newsletter is for informational and educational purposes only and should not be considered as financial, investment, or legal advice. The information shared is based on our research and analysis, but we are not a licensed financial advisor, nor can we guarantee its accuracy, completeness, or timeliness. Market conditions and financial instruments can change rapidly, and any opinions expressed may not be suitable for all investors. Any opinions expressed and or securities mentioned do not constitute a recommendation to buy, sell, or hold that or any other security. You should conduct your own due diligence and consult with a licensed financial advisor or other professional before making any investment decisions. Past performance is not indicative of future results, and all investments carry the risk of loss. The authors and publishers of this newsletter are not responsible for any financial decisions made based on the content provided herein. By reading and or subscribing to this newsletter, you acknowledge and agree that you are using the information at your own risk.

S&P 500 Up About 15% Off the Lows

Marcus Grant, CFTe — Tue, 29 Apr 2025 12:57:33 GMT

Since the S&P 500 bottomed on April 7th, it has rallied about 15%. The question remains is this a V bottom, a bear market rally or something in between? The truth is no one knows for sure. There are some positive signs but the S&P 500 and most other sectors & indices, still have overhead supply to work through if they are to continue higher.

Let’s get into some charts.

The S&P 500 E-mini futures bounced right at the prior cycle highs from late 2021/early 2022 and the AVWAP from the 2022 low. However, there is potential resistance overhead at the AWVAP from the 2025 high and above that a declining 200-day SMA.

I’ll start with some good-looking charts.

Bitcoin is one of the best-looking charts out there now. It retested and bounced off the 2024 highs (in fact in didn’t quite touch those old highs) and is currently above a rising 200-day SMA. After a big move up early last week, it has been consolidating in a tight range for the last week or so, right at the lower end of its November to February range.

Copper had a failed breakout on March 26th and proceeded to crash about 25% in less than 10 trading days. However, it’s recovery since has been strong. I think this is a positive sign.

The Financials ETF, XLF didn’t quite touch its prior cycle highs (not shown, but it was close) and is now above a rising 200-day SMA. It is also above the neckline of the head and shoulders pattern it broke down from in early April. XLF is the strongest looking of the major SPDR sector ETFs. Only XLF, XLC, XLU and XLP are above their 200-day SMAs. However, RSI looks a little bit weak, only just above 50 (shown in the bottom pane on the chart).

The Communications Services Sector ETF, XLC retested and bounced off its prior cycle highs and is back above a rising 200-day SMA. However, it’s at potential resistance with the AVWAP from the 2025 high and the neckline of the head and shoulders pattern it broke down from in April, sitting just above. The RSI is also a little weak, just above 50.

The German DAX looks the strongest of developed international markets. It’s above all its SMAs and AVWAP from the 2025 high. However, its sitting at potential resistance where it broke down in early April.

The IEI/HYG ratio, which is used as an indicator for credit spreads, has come in significantly after spiking during the selloff. This is a positive sign.

The VIX has also come in after a big spike but is still slightly elevated.

Tech Software sector ETF IGV has had a nice bounce and reclaimed the prior cycle highs and its 200-day SMA. It still has some work to do though.

Now some not so good-looking charts.

Semiconductor ETF SOXX broke down from a large topping pattern in late February and lost its prior cycle highs in the recent decline. It has bounced and sits just below that level now. It has a lot more overhead supply to get through if it is to make new highs.

Semiconductor ETF SMH looks better than SOXX but also has a lot of overhead supply.

The S&P MidCap 400 Index is below its prior cycle highs with a lot of overhead supply.

Oil has broken down, which is probably not a good sign for global growth.

Lastly these ratio charts I showed in a previous post are still below prior support. It will be difficult for the S&P 500 to go on to new highs, without tech and semis participating, if not leading.

Tech (XLK) relative to SPY.

Semis (SMH) relative to SPY.

In conclusion I remain cautious with so much overhead supply in most markets. I wouldn’t be surprised to see the S&P 500 make a lower high somewhere below its 200-day SMA. If that occurs, I will be watching 5340-5380, to see if it can make a higher low in or above this area. If it can’t I think the probability of a retest of the lows increases. However as always, I will remain open minded and react to the price action. If the US and China, make a deal regarding tariffs, markets will likely surge. Although I don’t think there is a high probability of a comprehensive deal in the near term, but hopefully I’m wrong.

Cheers,

Marcus Grant, CFTe

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The US Dollar Has Been Very Weak in 2025

Marcus Grant, CFTe — Fri, 11 Apr 2025 09:58:59 GMT

Currency markets have been very volatile recently. The USD is currently down around 9% year-to-date. It is a little bit surprising that there has been no bid for the USD in an environment where most stocks have been getting hammered since March. The “flight to safety” (i.e. a move towards USD or USD denominated “safe-heaven” assets) that is often seen in periods of uncertainty or market upheaval has not taken place this time, at least not yet. Some have suggested this time is different because the cause is the tariffs being imposed by the US on other countries. However if large tariffs are enacted and US trade with the rest of the world is reduced, it would reduce the supply of USD in the system, all else being equal.

Below is a chart of the USD/EUR & SPY year-to-date.

The US Dollar Index has also diverged significantly from the 10-year treasury yield. As you can see in the chart below, since 2023, they have followed each other quite closely, most of the time. However, in the last week or so, the 10-year yield has risen quite sharply, and the USD has done the complete opposite.

US Dollar Index chart:

Here are some individual charts of the major currencies in the US Dollar Index.

EUR/USD:

USD/JPY:

GBP/USD

USD/CAD

USD/CHF

I wouldn’t be surprised to see a decent mean reversion rally in the USD in the coming days or weeks, but things are so unpredictable at the moment, anything could happen. However, if the USD keeps crashing like this, I don’t think that will be good.

What do you think?

Good Trading & Manage Risk Carefully!

Cheers,

Marcus Grant, CFTe

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SPY & QQQ Undercut & Rally

Marcus Grant, CFTe — Tue, 01 Apr 2025 13:13:01 GMT

Yesterday, on March 31st, the SPY and QQQ gapped down on the open, undercutting the low from March 13th, taking out anyone who had placed their stop loss just under this level, then proceeded to rally throughout the day. This kind of price action can shake out the weaker hands and set the stage for a rally, especially if the market shows further strength over the next few sessions.

I was stopped out of the 3 swing trades I mentioned in this post (link) and will sit on my hands observing for now. I think we must be open minded to further downside.

Although the undercut and rally setup can often provide a good entry, I am not yet convinced that the bottom is in. Personally, I want to see more evidence before putting on any new swing trades.

Here are some of the reasons I am not yet convinced. Yesterday’s rally was led by the more defensive sectors, XLP & XLU, while XLY, XLK & NDX lagged.

Semis (SMH) relative to SPY made a new lower low, under for what is now a completed topping pattern.

As did Tech (XLK) relative to SPY.

If SPY is to have a sustained rally, I think these 2 tops need to reverse and become failed tops.

Growth relative to value also made a new lower low. IWF is the iShares Russell 1000 Growth ETF, and IWD is the iShares Russell 1000 Value ETF. The top pane of the chart shows the IWF/IWD ratio, and the bottom pane shows the SPX.

Equal-weight consumer discretionary relative to equal-weight consumer staples also made a new lower low. RSPD is the Invesco S&P 500® Equal Weight Consumer Discretionary ETF, and RSPS is the Invesco S&P 500® Equal Weight Consumer Staples ETF. Again, the top pane of the chart shows the ratio, and the bottom pane shows the SPX.

These 2 ratios are a good measure of risk-on vs. risk-off and tend to track the SPX quite closely. However, not all divergences mean the SPX will follow, and there are other ratios of risk-on vs. risk-off that did not make lower lows yesterday. However, I will remain cautious and open-minded to the possibility of further downside until I get more evidence that things are starting to turn.

Hope everyone has a great week!

Cheers!

Marcus Grant, CFTe

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Will International Equities Continue to Outperform the US?

Marcus Grant, CFTe — Tue, 01 Apr 2025 08:50:27 GMT

The iShares MSCI EAFE ETF (Ticker: EFA), which “seeks to track the investment results of an index composed of large- and mid-capitalization developed market equities, excluding the U.S. and Canada”, has outperformed US indices in 2025.

The chart below shows EFA and SPY (total return) performance year to date.

Below is a relative chart, which shows the strong outperformance of EFA vs SPY since the beginning of 2025, despite underperforming substantially over longer time horizons.

Here is a chart of EFA going back to 2021 and it looks like this may turn out to be a failed breakout for a second time.

Below are the sector breakdowns within EFA. Notice there’s not a lot of technology.

Source: https://www.ishares.com/

Below are the geographical breakdowns by country.

Source: https://www.ishares.com/

Looking at the main indices of the countries that dominate the stock exposure in the EFA, only Germany looks any good.

Japan looks bad.

Although not as bad as most of the others, the UK looks like it’s in for another sideway consolidation at best.

France looks bad.

Switzerland just had a failed breakout above the 2021/22 highs.

Germany was looking good, but after breaking down yesterday could fall further from here, unless it can reclaim the horizontal support/resistance and 50 day SMA.

Australia also looks bad.

Hong Kong has been strong, so I decided to included it. However HK stocks are only a tiny weight in EFA. The HSI probably needs some time to consolidate for a while here. Which if it can do above the 50 day SMA would be very constructive. If not a fall back to around the 200 day SMA is not out of the question.

Part of the EFA outperformance in 2025 has been due to a weak US dollar. If markets continue to fall and the USD catches a bid in a “flight to safety”, this will hurt the performance of EFA, as it is priced in USD and unhedged. I’ll be watching the 104.65 level on the DXY.

Will international equities continue to outperform the US? I think it’s probably unlikely in the short to medium term. The major indices of the countries that make up the majority of the stock weightings in EFA, mostly don’t look very good priced in their local currency. If US indices have another leg down, I think international markets will follow, and the USD may catch a bid. On the other hand if US indices have a decent rally from here, it will likely be due to a rotation back into technology, which would also see EFA underperform. But lets see. Definitely one to watch.

Hope everyone has a great week!

Cheers!

Marcus Grant, CFTe

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SPY Rejected at 575

Marcus Grant, CFTe — Thu, 27 Mar 2025 08:21:15 GMT

Wednesday March 26 was a pretty bad day for the US markets. Staples, Utilities, Energy, Real Estate and Materials were the only sectors in the green. Tech and Consumer Discretionary were hit the hardest, down 2.23% & 1.31% respectively. The Nasdaq 100 was the worst of the major indices, finishing down 1.83%. However many high beta growth names were down significantly more.

Looking at the SPY, it was rejected pretty hard after stalling at the AVWAP from the all time high. There was a confluence of potential resistance around this level, including the 200 day SMA and a previous horizontal support/resistance level, so it’s not surprising it didn’t just slice through this area on the first attempt.

However if SPY can hold 564-565 on any further pullback, the short term uptrend on the 65 minute chart is still intact and it may build for another attempt to break through 575. If we lose 564-565 however, which would be below the AVWAP from the recent lows and the gap fill from Monday’s gap up, we may see a retest of the recent lows and potentially further downside.

Following up on the trades I mentioned in my last post (link). I was filled on SPOT, which closed down slightly from my entry. NFLX & PLTR haven’t been filled, but I will leave both resting orders for now.

Happy Trading!

Marcus Grant, CFTe

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Testing the Waters

Marcus Grant, CFTe — Mon, 24 Mar 2025 10:59:59 GMT

Image: Made by ChatGPT

The SPY, QQQ and IWM are all still under their declining 20 and 50 day simple moving averages & perhaps even more worryingly under their 200 day SMA, with quite a lot of potential overhead supply. The fact that we’ve only had such a meager bounce off the March 13 low, and have spent 2 weeks under the 200 day SMA, is a little concerning. Also the fact we didn’t have a large capitulation and reversal day, has me thinking we may see a lower low or at least a retest of the March 13th low in the indices.

Here’s a look at the SPY:

QQQ:

And by far the worst of the three, the IWM:

There are however some individual stocks that have held up much better than the index ETFs. During a pullback or correction, stocks that show relative strength (and aren’t defensive stocks, like consumer staples etc.) are more likely to perform better when and if the overall market headwinds subside.

Below are the stocks I am looking at as good potential swing trade candidates to test the waters. Given the overall negative environment I will only be taking small starter positions. For me that is usually risking 0.5% or less of my account per trade. If they start working and I get traction, I will raise my stop losses and add exposure. If not, it’s time to sit on my hands again.

Firstly Spotify (SPOT):

Despite selling off sharply between March 3-10, it recovered quickly and is trading above both its 20 and 50 day SMAs and the AVWAP from the all time high. It also stayed comfortably above its 200 day SMA during the selloff.

Since I live in Australia I can’t put on trades live during US market hours (unless I want to stay up half the night). The pre-market price is currently $616, so I won’t place a buy stop order, as I don’t want to get filled in the 600s. I will place a limit order under the current price (Friday’s closing price was $599.94) at $582, with a stop loss at $554.50 and a tentative target of $650, with the possibility of raising my stop loss and trying to let it run to $700-750 if it gets through $650 and is acting well. Obviously it might run away from here anyway and I never get filled, but that’s OK with me. I would rather miss a trade than chase. If I don’t get filled overnight I will reassess whether to leave the resting order or cancel it, depending on the price action.

Second is Netflix (NFLX):

Netflix also sold off sharply between March 5-10, filling the earning gap from Jan 21/22, but has also recovered quickly and is now above its 20 and 50 day SMAs and the AVWAP from the all time high. I will place a buy limit order at $943, with a stop loss at $908 and a tentative target at $1050.

Lastly Palantir (PLTR):

This is a similar setup to the others. It sold off sharply between March 3-10, undercutting the 50 day SMA, but has recovered and reclaimed the 20 and 50 day SMAs and the AVWAP from the all time high (just). I will place a buy limit order at $86, with a stop loss at $79.5 and a tentative target at $118.

These 3 trades, if they trigger, are all likely to succeed or fail together. They were all leading stocks, recently making all time highs, and are quite volatile, with high ATRs, especially given they aren’t small companies. Therefore I am only taking small positions, risking 0.5% of my account on each trade. If the market does bounce from here, these 3 stocks should quickly approach their prior peaks. They were market leaders, and all actually bottomed a few days before the indices (March 10th vs 13th). They have also all recovered well since they bottomed on March 10. However if the indices roll over and have another leg down from here, I will be stopped out of these positions very quickly, but that in itself is valuable information that more patience will be required.

Hope everyone has a great week!

Cheers!

Marcus Grant, CFTe

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Be Careful Trying to Catch a Falling Knife

Marcus Grant, CFTe — Wed, 12 Mar 2025 08:24:03 GMT

From Grok:

"Don't try to catch a falling knife" in technical analysis is a metaphorical warning against buying a stock (or other financial asset) that is in a sharp, rapid decline. The "falling knife" represents a stock's price plummeting, often characterized by steep, near-vertical drops on a chart, and attempting to "catch" it symbolizes buying the stock in hopes of timing the bottom, expecting a quick rebound. The phrase cautions that such a move is risky because the downward momentum may continue, leading to further losses before the price stabilizes or reverses.

Image: Made by Grok

Since my last post about a month ago, declines in the major US indices have been quite rapid, and many previous high flying growth stocks that were leading the market have been smashed.

The SPY is down nearly 10%

The QQQ is down over 13%

The FANG+ Index is down nearly 20%

All three indices have sliced through their respective 200 day moving averages (not shown on the charts above), and look like they could fall further. As I alluded to in the title, I want to be very careful trying to catch a falling knife.

How am I planning to enter new index ETF positions?

For my long term account, my preferred scenario would be a large gap down on a bad news headline that reverses hard intraday and closes with the big hollow (up) candle. This would provide a tradeable (potential) bottom, where risk can be defined clearly under the low of that candle. Of course, the low may not hold, but if it doesn’t, I am OK getting stopped out. I do not want to hold positions during a large drawdown when the indices are under their 200 day moving average.

For swing / medium term trades I will use call options, so I can define my risk. At the moment I have a limit order for SPX options, that expire on 20 June 2025, with a 5700 strike price. They are currently trading just over $190. I have a limit order at $75. The SPX would have to fall a lot for those orders to be filled. Futures are currently just under 5600, so a dip under 5400 would probably be needed to trigger that order. I am not confident that will happen, but it certainly could. I feel we haven’t really had a big flush or panic yet. Despite falling a lot, there hasn’t been a big VIX spike, or other indications of extreme panic or capitulation.

I will keep this post short, but will try to write at least weekly from now on. I will do a post about non-US markets, interest rates and FOREX, as well as some individual stocks in the near future.

Hope everyone has a great week!

Cheers!

Marcus Grant, CFTe

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Traders: Less Is More, Investors: Zoom Out

Marcus Grant, CFTe — Mon, 10 Feb 2025 12:47:43 GMT

After a nice run up following the US Election, the SPY has been chopping around in a sideway range of about 5%, making it difficult for swing traders. Lots of gaps and higher volatility make it more treacherous for all but skillful day traders. In this type of environment I tend to dial back my stock trading, both in terms of frequency and position size. I also use wider initial stop losses, to give trades a little more room, trying to avoid getting shaken out of positions (although some would say using tighter stops is the way to go - each to their own, you need to do what works for you). I also tend to be quicker taking profits. Sometimes taking half off, then raising my stop loss to breakeven. Or just have smaller targets. When markets are trending you want to stay in a position for as long as you can when they are going in your favor. However in choppy sideways markets if I can make 2x my initial risk I tend to take it, especially if momentum is waning on smaller timeframes (30 minute chart).

Looking at this 1 hour chart of the SPY you can clearly see the large sideways range it’s been trading in since the election gap up. If we can consolidate above 595 (or even better 600) this week, we could be setting up for a breakout to all time highs. However if we lose 595, a retest of 590 (Monday February 3rd’s gap down lows), and maybe even a setting a lower low towards 585 is possible. Beyond that a retest of the bottom of the range at 575 is not out of the question.

Seasonality suggests we could be in for some further choppy, downside action.

Source: Grant Hawkridge

Grant’s Takeaway: “February, on average, usually starts off positive, but the S&P 500 tends to decline shortly after Valentine's Day. On average, the month finishes relatively flat, with only 48% of days experiencing positive daily gains.

February is regarded as the second worst month of the year in terms of seasonality. Over the past decade, only 50% of February's have ended on a positive note. When we look at a longer time frame, the trend doesn't improve much; in the last two decades, just 60% of Februarys have finished with overall gains.”

Another great chart here from Grant, shows the tendency of the 3rd year of a bull market to be messy and sideways .

Source: Grant Hawkridge

Grant’s Takeaway: “Let's start by clarifying how I define a bull market:

A bull market is a 20% or more rally preceded by a -20% or more drop.

The current bull market has been ongoing for 581 trading days, resulting in a 69% gain. However, historically, after two years of strong market gains, the third year tends to be flat.

We are currently 78 trading days into the third year of this bull market, and it appears to be following its historical trend of remaining relatively flat during this period, as it has only gained just over 3% in four months.”

However zooming out on the SPY chart shows we are still in a strong and steady uptrend.

Even if we were to have a larger pullback to around 560-565 (a fall of around 7-8% from the all time highs) which would coincide with the 200 day simple moving average and the anchored VWAP from the April 2024 lows, the longer term uptrend would still be intact. If we were to have a larger correction and test this area, it would likely be an excellent buying opportunity for longer term holders/investors. Although if it did happen it would feel pretty scary at the time.

We should remember the SPY is only just over 1% from all time highs. There are also some good looking charts out there. The mega-caps are mixed on an individual basis, but the FNGS ETN, which tracks the NYSE® FANG+™ Index is pushing up again all time highs.

Here are the current components:

Speculative Tech/Growth also looks good. Below is the ARK Innovation ETF (ARKK), which is pushing up against 52 week highs.

Financials XLF and Communications XLC are also knocking up against all time highs. Although both are looking a little overextended here. Friday’s price action gapped up and rejected higher prices, closing at or very close to the lows of the day, so it wouldn’t be surprising to see some consolidation or a pullback here.

In conclusion, it’s likely we will continue to see some choppy action and maybe even a pullback in the short term. From a swing trading standpoint, I will continue to trade less and in smaller size until it becomes clear the uptrend has resumed. However, in my longer term portfolio, if we do get a larger pullback or correction I will be looking to buy/add SPY and other strong stocks or sectors.

Hope everyone has a great week!

Cheers!

Marcus Grant, CFTe

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S&P 500 ONWARDS AND UPWARDS IN A RECORD BREAKING YEAR (SO FAR)

Marcus Grant, CFTe — Fri, 11 Oct 2024 06:46:24 GMT

Since my last post the S&P 500 has broken out above the resistance discussed around 562-565 on the SPY and consolidated nicely above it. The chart looks looks very constructive. As long as we hold above this level there is no reason to get worried.

It’s interesting how well the S&P 500 has held up in the face of election year seasonal headwinds. This in fact points to how strong the market current is.

The chart below by Grant Hawkridge, shows that this year (red line) is the best performing election year (so far) going back to the 1950s.

Source: Grant Hawkridge

And not only that, but it is the best year to date performance for any year going back to 2000. H/T The Daily Shot

Source: The Daily Shot

Interestingly, “fear” as measured by VIX futures, is quite elevated, at nearly some of the highest levels for the year (except for the Yen carry trade panic in early August when markets went a bit haywire).

The US Dollar Index (DXY) has also made a fairly swift move higher since the start of October, after looking like it wanted to breakdown under 100. A higher USD is usually consistent with a risk off environment or trade.

Here’s another great chart from Grant Hawkridge showing other risk on - risk off measures that usually have a fairly high correlation with the S&P 500. All is in order, except for the US dollar.

Source: Grant Hawkridge

Updating some of the charts from my last post, you can see the FANG+ Index has slightly outperformed the S&P 500 in the last 3 weeks.

This ratio chart shows the S&P 500 relative to the FANG+ Index and the black line is turning down again, which means the FANG+ is outperforming.

Here is the FANG+ index futures chart. It still hasn’t reached a new ATH. However it has started making higher highs and higher lows, and seems poised to make a run towards the July ATHs, currently being lead by Nvidia, Broadcom and Meta, which have performed well in recent weeks.

So, in conclusion, the S&P 500’s strength in the face of typical seasonal election year headwinds is very impressive. There is no reason to start worrying unless the SPY breaks back below 562-565. The VIX is elevated relative to where its been most of the year, however this is probably due to hedging (put buying) due to uncertainty regarding the upcoming election. However, I would say it’s a good thing that people are generally a bit “fearful” and not super bullish or optimistic currently, despite the S&P 500 being a hair away from new ATHs yet again. The US dollar strength is something to keep an eye on, but I think it has just been following the 10Y Treasury Bond yield higher since the start of October.

Thanks to those who read to the end! Let me know what you think, I’d love some feedback, or leave a comment, and please subscribe and or share the post with friends who may also enjoy it!

Cheers,

Marcus

S&P 500 KNOCKING ON THE DOOR

Marcus Grant, CFTe — Thu, 19 Sep 2024 13:31:36 GMT

So, this is my first Substack post. Hope you all like it and find it of some value. Please feel free to get in touch with any feedback or just to say G’day. I’ll try to post weekly from now on with some analysis, trade ideas and or trading wisdom I have learned from those who have come before us. I’ll do a post in the future with my favorite trading books and resources.

Just a little about me before I get into it……

My name is Marcus and I’m from Melbourne, Australia. I did a finance degree at Melbourne Uni over 2 decades ago (time flies!) and am currently undertaking the CMT Program. For those that don’t know, its a global designation for practitioners of technical analysis.

I started trading seriously in 2008, at the onset of The Great Recession or GFC (as we call it in Australia), which was quite the induction. I got smashed around a bit, but learnt many good lessons the hard way, which have stood me in good stead. I mostly trade CFDs (contracts for difference) which are very popular in Australia, the UK and Europe, but are banned in the US because they are an over-the-counter (OTC) trading product. Anyway, you can basically trade anything with CFDs, currencies, indexes, stocks, commodities, crypto, futures and even some options now.

Anyway, enough about me……

Currently there are some potentially bearish headwinds from seasonality, and uncertainty with the upcoming US Election, which we should be mindful of.

H/T Grant Hawkridge and Ryan Detrick

Source: Grant Hawkridge

Source: Ryan Detrick

The bears are pointing to the negative forward returns after the first rate cut of the cycle in 2000 & 2007, and some are saying the un-inversion of the yield curve will lead to a recession and a new bear market . However the reality is the S&P 500 is right up against resistance, knocking on the door of all time highs. And all this without the biggest, most important stocks (in terms of market cap weight in the index) leading.

Here is a zoomed out SPY chart making its third attempt to break through 562.

And a closer zoomed in look below:

I have the year-to-date AVWAP on the chart, which is a level that should hold on any future near-term pullbacks if the market remains healthy. You can see it acted as support already twice this year. H/T Brian Shannon, his new book, Maximum Trading Gains with Anchored VWAP, is a must read in my opinion.

In the chart below, which shows the S&P 500 relative to FANG+ index, as the line goes down, mega-caps are outperforming the S&P 500, and when the line goes up, the S&P 500 is outperforming mega-caps. You can see it has turned up recently, as it did in early 2021, which means mega-caps are underperforming.

But until this relative chart reverses its current downtrend and becomes an uptrend, I think the S&P 500 is likely to continue to go higher. You can see in the chart below the S&P 500 continued to go higher throughout 2021, despite the S&P500/FANG+ ratio going sideways. It wasn’t until the S&P500/FANG+ ratio chart broke out to the upside at the start of 2022, that the S&P 500 began its severe 2022 decline. The ratio then peaked just after the S&P 500 bottomed in Oct 2022.

As long as mega-caps don’t fall apart, I think the S&P500 can and will go higher from here. Maybe not right away…it’s certainly possible more consolidation and time is required. But if the mega-caps start leading again (i.e. the ratio chart continues its top left to bottom right trajectory) the S&P 500 will breakout sooner rather than later.

So, on the flip side, if this is to become a stage 3 top in the S&P 500, and we are going into a new correction or bear market, we will start to see the mega-caps breakdown one by one. Below is the FANG+ index chart and the individual stock charts that are in the FANG+ index, with the prices I think are important and need to hold.

FANG+ above 10,400.

Apple above 198.

Amazon above 177.

Broadcom above 141.

Google above 150.

Meta above 455.

Microsoft above 400.

Netflix above 585.

Nvidia above 98.

Snowflake looks like shit and should probably be kicked out of the FANG+ index, but maybe it can hold its lows here…..

Last but not least, Tesla is a choppy sideways mess, but it did go up nearly 3000% between Oct 2019 and Oct 2021, so a few years of sideways consolidation since then is probably well warranted…

So, in conclusion, I think patience could be required here. But there is definitely no reason to get bearish until some of the levels outlined above start getting taken out. Also the S&P 500 futures are currently indicating an open in the cash market around 5715. I am not going to chase here, but if we close today above 5700 and follow through on Friday (20/9/2024) I will be adding to my long positions next week. I will do a new post early next week with details if that happens. For disclosure, I am currently long weekly SPX 5700 call options, which expire end of day Friday, but it’s not a big position. I also have some long exposure in individual S&P 500 stocks, which I will elaborate on in a post next week. I am also long gold, via options on the Dec futures contract with a $2550 strike price, and WTI crude oil, also via options, on the Nov futures contract, with a $71 strike price. I’ll try to do posts on my analysis of those commodities and positions, as well as some crypto stuff in the next week or 2.

Thanks to those who read to the end! Let me know what you think, I’d love some feedback, or leave a comment, and please subscribe and or share the post with friends who may also enjoy it!

Cheers,

Marcus