Daily Plan 2.29.24
Welcome back everyone!
Today's trading session showcased phenomenal performance across stocks, indices, and commodities, with strong moves working in our favor. The Emini particularly stood out, dominating the market scene. The short level identified turned out to be the high of the day, and almost every dip was promptly bought, with one dip I predicted nearly hitting the low of the day. Overnight, we witnessed the market selling down from the short levels on the Emini and Nasdaq, resulting in a decline of 24 handles for the Emini and 106 handles for the Nasdaq.
Why was I confident in expecting a bounce back to highs?
The numerous rebounds witnessed today were primarily driven by Bitcoin's surge to new swing highs, juxtaposed with the Emini's downward movement failing to breach the previous session's low. Bitcoin's ability to hold above 60k strongly indicates ample liquidity in the market, with hedge funds and retail investors alike allocating funds. A strong rally to all-time highs typically indicates easy access to funds, a crucial element for sustained market growth. However, it's essential to note that traders often tend to hold on to their positions for too long, ultimately relinquishing their gains. While this isn't necessarily a warning sign of reaching market highs, it sheds light on the psychological dynamics underlying significant market movements. This insight leads me to anticipate another high in the indices, particularly as stocks are being accumulated during periods of price lows.
Regarding the timing of the bounce, my confidence stemmed from the failure to breach the previous session's lows. If a sell-off were imminent, we would have already breached the swing VAH, a point I've emphasized since last week. The fact that we've remained above this level indicates attractiveness to buyers. From a volume profile perspective, volume drops off below the 5070s, suggesting buyers are positioned just above, defending the rally.
Why was 5087 identified as a key level where sellers were present?
As I mentioned last night, there's an LVN positioned at 5090 within an overall B-shaped profile. Treating this LVN like typical VAH resistance and VAL support, it becomes evident that 5087 is where sellers are actively defending price to maintain pressure. This understanding underscores why I highlighted the presence of sellers at this level. Moreover, breaking above 5087 could propel the upward move off lows, potentially extending strongly into the value built above the LVN. This dynamic is clearly visible on the chart.
This setup going into tomorrow is perfect, given that we've closed at the lows, once again testing buyers or waiting to see if sellers will push prices back below the swing VAH.
Beyond the indices, I'd like to highlight that I've accurately predicted the low in Corn (ZC) thus far. For those unfamiliar with the market dynamics, I urge you to refer to the educational section of this Substack and review the Tick Size and Values post, where I delve into the amount at risk in each market. Not only do I cover the tick sizes and values, which vary across different markets, but I also provide insights into potential gains and risks. For instance, from the lows at 394, a single lot of Corn would be up 19 handles, equivalent to 76 ticks, resulting in a net $950 unrealized gain. The risk is at the swing lows; upon breaking this level, the setup would be completely stopped out. Accounting for two handles of slippage, the critical level stands at 392. Therefore, with a potential gain of 19 handles and a risk of 2 handles, the risk-reward ratio stands at 9.5:1. On the COT trade tracker, there are 80 lots allocated with a net risk of $5,000. Calculating this, we get ($80 lots x 76 ticks) x $12.50 tick value = $76,000 unrealized profit. It's important to note that these figures are based on a $500,000 account using a 1% risk ($5,000), so they may vary depending on account size and risk percentage.
Shifting our attention to some specific stocks and proceeding with the rest of tomorrow's analysis, let's examine AAPL. It managed to remain below the short level for 90% of the session, providing 2 handles of selling from the 181.91 short level. Similarly, MSFT had nearly the exact same session, with 2 handles of selling from the 407.99 short level. GOOGL, on the other hand, continued its downward trajectory, offering 2.5 handles of downside from the high, which was 30 ticks below the short level. TSLA continued its upward movement from the 199.05 long level, which coincided with the low of the day, resulting in 6 handles of upside.
Now, let's dive into the analysis for the upcoming week!