Welcome back, everyone. I hope you all had a great session yesterday.
We saw quite the sharp selling on both the S&P and Nasdaq. While we warned of this move earlier in the week, we also had levels to capture the downside. Let’s focus on the S&P, as the levels posted were strictly for that index.
Once again, we called on the 6968 value area high (VAH) to bring selling, which has been the main short level all week. Three times this week, we have sold down from this level to hit the main target at 6932. Just to refresh everyone on why 6932 was a main target: it is the point of control (POC) of the large value area—the price that has traded the most volume in the last three months. Anytime we slip back into this value area, we tend to see a move right to the POC.
Going into each session, we had higher certainty that we could see a sell-off down to this level. Another key level is 6889, which is a high-volume node (HVN) inside the value area. This level was also hit before continuation down to the 6840s. So, both our POC and HVN targets were achieved in one session. The interesting part is the fact that we have yet to see the CPI data. Every time we get a rally near 7000, we have sold right back down. As I have spoken on for the last three weeks, this also aligns with the Nasdaq’s 10-week EMA. Calling shorts at these highs has worked in the past and has worked once again.
Honestly, the sad part about this recent bounce on the indexes is watching retail blindly buy into dips or even add to recent losers. They did this all while the indexes were hinting at further selling to come. This should reinforce the concept of what these moving averages show relative to the trend. Volume Profile gets the intraday levels for buyers and sellers, while the moving averages tell us if we should be focused on buying or selling.
To expand on this: in an uptrend, you can expect breaks to new highs; in downtrends, expect breaks to new lows. The market looks like we are currently balancing before the next leg up, but we are actually in a downtrend. In these conditions, you don’t want to just buy stocks that are considered “undervalued,” or else you will watch them continue to drop. You may get lucky and buy at the bottom, but that is a sucker’s game to think you can consistently do it.
Focus on the trend and buy during periods when the market shows strength relative to averages. When the time comes, I will address this to everyone right here in the newsletter. Until then, expect rallies to be sold and new lows to be hit.
Turning to today’s session, we can see a potential shift in sentiment as inflation data is due before the open. I believe we will see the indexes balance if inflation comes in unchanged or slightly lower. On the other hand, on any increase, we could see a sharp negative reaction. The market could very well be front-running the inflation print, but we will never know. All that will matter, as always, is price.
Let’s dive into the levels for today’s session.
