Fed, Quad-Witch, and a Weekly-Up Rotation | Ford, PFE, AAPL

We have a potential week of chop coming up (again).

Technical Breakdown 

• NYSE Breadth: 54.3% upside volume

• NASDAQ Breadth: 47.75% upside volume

It’s about 5:15 am and the futures are creeping higher to start the week. The ES is up 30 basis points, while the NQ is up 40 basis points. The Dow and Russell are in similar positions, with each up 0.23%.

Last week, I wrote:  

“I’d love to see the S&P 500 finish in a weekly-up setup. The Nasdaq could too, but an inside week wouldn’t be bad either, as it has yet to fire above last week’s high.”

That’s exactly what we got with Friday’s late-day push cementing the setup coming into this week. Without any headline drama over the weekend, it should be an interesting week. However, I must note a couple of things. 

Watching

It’s Opex week and that means we could get a potentially choppy couple of days. Adding to it, it’s quad-witch expiration as well. Opex weeks have a tendency to be choppy in the first few days of the week, killing off some of the time premium heading into the later part of the week. 

Only this time, we also have the Fed’s two-day meeting too, with announcements due up at 2pm on Wednesday. So keep these things in the back of your mind in relation to position sizing, entries and risk. 

Further, I want to add a note about inflation. For months now, inflation has been a major headline risk, even though it hasn’t resulted in lasting market damage (so far). If inflation can swing from a headwind to a tailwind (i.e. we have peaked in inflation and get some month-on-month declines), then this could be good for stocks. 

S&P 500

S&P 500 Daily | Click to Enlarge

On the S&P 500 chart above, I outlined the prior week’s high at ~4673 and low at ~4495. We went weekly-up on Tuesday, then held that level as support for the rest of the week. That’s very impressive action! 

The back-to-back strong breadth days on Monday and Tuesday really helped here, even with some mixed-breadth days later in the week (I attribute this to “Roll Day” in the index futures and some choppiness ahead of this week). 

In any regard, the SPX now finds itself near 4720 resistance. The upside is pretty straightforward: Clear 4720 to get to the ~4744 all-time high. Keep in mind that the new upside extension is all the way up near 4,900. 

On the downside, I want to hold 4672 as support (again, the high from two weeks ago), as well as the 10-day and 21-day moving averages. Do this and we have a recipe for a strong finish to 2021. 

Nasdaq

Nasdaq Daily on the Left | Weekly on the Right

The above chart has the daily chart on the left and the weekly chart on the right. It does a great job of showing the “inside week” on the right. Regarding the potential for an inside week last week, I wrote: 

“A rotation higher that’s not a false breakout likely puts 16,150+ in play. For this decline, we had a peak-to-trough fall of 7.9%. That’s pretty normal based on this year.”

A rotation higher could immediately put 16,000 in play, followed by the 16,150 level and the all-time high up at 16,212. Above 16,250 and the new upside extension near 17,000 could be on the table. 

On the downside, we want to see the Nasdaq hold 15,500. A break below could put the 50-day moving average in play, followed by the gap-fill level at 15,280. 

A lot of investors are scared and nervous of a big pullback. Maybe it happens, but as of now, the bulls are in control. Until they concede, we are sticking with the upside bias. 

Individual Stocks — PFE, F, AAPL