Last week the SPX ended options ex week as expected with weakness starting to come in and confirm the weak breadth and bearish internals that have been building for over a week now. Closing the week near the lows opens up the door to retest that 4300 level which may produce a small bounce before further selling going into the seasonally weaker end of July time period. Lots of signals pointing to caution for now and even short trades have been working well. This week is also the start of more earnings reports hitting the market with some bigger tech names coming later in week and next week. Watching open gaps and VPOCs below the market will be key as there is quite a few below the market which can act as magnets the market likes to test and fill. Overall SPY likely testing the 21 ema early this week near 430 and that should be a big line in sand level for potential more downside or short term buyers to support for a bounce. VIX stayed strong friday which was a clue that volatility is getting bid and could likely get that pop into the low 20s which may be a level to cover some shorts or sell some premium into. The 50% retrace of the recent rally comes in at 426.31 as shown below and would be a first level to target support. RSI (5) has also seen bearish divergence recently pointing lower.
Short term ES_F futures chart showing recent untested VPOC’s below the market. When these stack up to more than a handful as shown it becomes a magnet for the market to test on the downside. The nearest ones to watch are 4305, 4270.25, 4256.75, 4238.5, and much lower eventually can see the 4094 VPOC but thats still a way’s out.
3 PEAKS MARKET SIGNALS OVERVIEW:
TREND- SPX Short term trend of the 8/13/21 EMA’s = Strong bullish trend
Long term trend of the 21/55/89 EMA’s = Strong bullish and EMA’s stacked positive.
CONDITION/BREADTH- SPX Momentum is weakening even though the trend is bullish, clearly losing momentum the past week which can lead to short term downtrend eventually.
Breadth continued weakness last week. Cumulative Advance/Decline line broke to new recent lows as shown below and should be a red flag into end of July. NYSI Summation index pushed to new lows Friday. New 52 week highs have been lagging with SPX near highs. NYSE had 109 new highs on Friday and this is below the 20 day average of 157 which itself is declining.
SENTIMENT- AAII Investor sentiment survey Bullish sentiment ticked down to 36.2% Bulls from 40.2% last week. Bears up to 26.8% from 24.5% last week. Bulls/bears ratio at 1.35.
Sentiment data is looked at as contrarian and Bullish signals occur when Bulls drop under 35%, or when Bears rise above 50%. Bearish signals occur when Bulls exceed 55% or if Bears drop under 20%.
S&P SPY Sector Glance:
6 of 11 SPY sectors are in strong bullish trends, XLK, XLV, XLY, XLC, XLRE, XLP. Utilities had a strong week leading the upside at +2.6% and that usually only happens in risk off markets. Energy got pummeled declining nearly -8% for the week.
Using long term trend of 5 EMAs to determine trend. When the 8, 21, 34, 55, 89 day are all stacked bullish we have a bull trend.
SEASONALITY ODDS:
The week after July OPEX has tendency for volatile swings. Dow is up 13 of last 18 years overall but Nasdaq and Russell have seen weaker performance. The Russell IWM is down 25 of last 40 years the week after July OPEX. If there is likely to be a bounce this week it would seem probable early in the week before Wednesday’s historical bearish days start to take over. Wednesday after OPEX week has been up on the SPX only 19% of years going back to 2000.
Inside week setups: Lots of earnings reports starting to get near on key stocks but a few inside week candles of note that could be worth playing the breaks of upside and/or downside of the candle if a weaker market.
Bullish inside weeks: UPS, CMCSA, EW
Bearish inside weeks: PDD, BIDU, AAL
Bull Put Spread Trade of the Week:
Square (SQ)
Sell the August 230/220 put spread for 3.50 or better. Earnings due out 8/5.
SQ has been basing nicely at 21 week EMA which is also near YTD VWAP. Held up green on Friday in a weak tape and although can see some downside if growth names get sold, it could be an even better put spread sale opportunity down under 230 if a few more days of selling materialize.
Individual Stock Scans of note:
Weekly inside candles: CMCSA, T, UPS, UNP, AXP, PDD, SCHW, IBM, SQ, CI, PNC, CME, CSX, EW, NSC, BIDU, ADI, GD, MET, BAX, AFL, YUM, MCK, BBY, KSU, EXPE, KEY, TTM, WB, AAL, SKX
8/21 EMA Daily Bull Cross: SO, D, BNTX, VRTX, KR
8/21 EMA Daily Bear Cross: CRM, TXN, AZN, SE, ZM, EWJ, SPOT, NTR, PTON, OKE, XLI, APO, CLR, SKX, COG, AEO, URBN, OSTK, TAN
Stocks compressing in TTM Squeezes within 10% of 52 week highs: VZ, CSCO, AVGO, SHOP, PM, BMY, RTX, VALE, LMT, GSK, USB, FDX, CSX, SO, NOC, DOCU, GD, EPD, MNST, MTCH, CNC, EA, PPG, AFL, YUM, NTR, NET, ZS, MCK, SYF, WORK, HRL, YNDX, IP, HIG, AKAM, CAH, CNP, JNPR, DKS, JBL, YETI, THC
55 day Highs with strong closes: GOOG, V, PG, ADBE, KO, PEP, ABBV, TMO, DHR, TMUS, COST, NEE, AMT, MRNA, MDLZ, CCI, CL, WM, DG, KMB, TT, LHX, WELL, RSG, OTIS, EQR, ES, WORK, INVH, VTR, AVTR, PEAK, DRE, NUAN, UDR, LNT, AMH, PFPT, FR, STAG, CVA