Welcome back, everyone. I hope you had a great session yesterday. The day was quite busy, so let’s break it down and then move on to the levels for today.
The first expectation going into the day was a sell-off down to the 6974 value area low (VAL). This was a key level for bulls to hold to get the move back up to the 7017 value area high (VAH). Unfortunately, price continued lower and invalidated this trade. We then broke below the short level, and price spent the next hour balancing around the low-volume node (LVN) that sits between the 6974 VAL and the 6968 VAH. This triggered another fake-out to the upside before ultimately selling down and reaching our short target at the 6932 point of control (POC). Price continued to sell for most of the session.
Many are wondering how I spotted the bounce into the close.
This was based solely on volume profile. To provide context, we are currently situated in a large value area ranging from 6808 to 6968. The POC sits at 6932 with a high-volume node (HVN) at 6889. If you have closely monitored the daily letter, you know 6889 has significant volume and has been noted many times previously. Heading into this level, I knew it could act as support after the failure to hold above 6932. On top of that, we were already down over 100 handles from the session high on zero news! Factoring in deep overextension and a key internal level like 6889, this was the only logical support left above the 6808 VAL.
In case you missed it, we called out 6885 SPX calls which were trading at 4.60. By the close, these contracts hit a high of 33.2—a 600% rally that could have net $3,000. While holding to that exact peak is unlikely, it highlights how outstanding the setup was.
Stock Watchlist Updates
PayPal (PYPL): Some unfortunate news regarding earnings. The stock was hammered today, dropping over 20% in a single session, and LEAP contracts were crushed. I will not look to add or roll into different LEAP contracts here. If the stock recovers back to 60, I will reconsider the position at that time.
Adobe (ADBE): Software stocks continue to get clobbered. I warned about avoiding software since late last year as competition rose and revenues dropped, specifically for companies focused on AI. Adobe is a prime example; many competitors have incorporated AI and become cheaper alternatives. Even simpler tools, like Grok, are now easily accessible. These legacy leaders are forced to integrate AI just to retain customers, but startups are matching their capabilities at lower price points. This is why we are seeing a broader sell-off across the sector.
MicroStrategy (MSTR): I want to touch on the bear case here because it is shocking how many investors are missing the structural risks. Investors buy MSTR as a leveraged Bitcoin play, but it thrives largely on speculation. Unlike traditional stocks backed by earnings projections, Bitcoin has zero revenue. History shows that manias built on pure speculation eventually correct.
Furthermore, Michael Saylor is raising capital by offering new shares, which dilutes shareholders. Since 2020, the company has nearly quadrupled its outstanding shares—the opposite of a stock buyback. He is essentially taking investor money to buy Bitcoin while the individual value of your shares is diluted over time. If crypto drops significantly, I believe there will be an uproar. Currently, MSTR is underperforming Bitcoin by a large margin since its all-time highs. Without new buyers to fuel the premium, current holders may find themselves fighting each other to exit. The bear case on this stock is strong and is already working in our favor.
Now, let’s move on to the levels for tomorrow.
S&P Levels
The previous session closed near the 6932 point of control (POC), which is the main pivot inside this value area. As noted before, we want to see price above the POC for bulls and below it for bears.
If we are able to open above this point of control, we could expect price to drift higher and retest the value area high (VAH) at 6968. This is a tricky area; clearly, it is a value area high, but each time we sell off and bounce back to this level, it gets technically weaker as more volume builds. It would be no surprise to see the low-volume node between the uppermost value area and the current value area begin to fill, creating a combination of the two value areas. Therefore, for the upside, the main target sits slightly below the 6968 VAH. Looking for a stronger move through the low-volume node is playing with fire, but if price is able to reclaim the 6974 value area low, we could expect a strong spike right back above 7000.
On the flip side, if price is unable to hold above the 6932 POC, I want to give some wiggle room for a potential short setup. This would drop the short trigger to 6925, with the first target being the 6889 high-volume node. I expect to see some relief at this level—like we saw in the previous session—potentially bouncing back up to 6905-6913 before the next leg lower down into 6857.
We have yet to speak on this 6857 level, so let me provide a breakdown. If you look at the overall profile, the bulk of volume sits between 6876 and 6966. Below this, we have a generally flat profile before the drop-off to the value area low. One notable spot is a dip in volume at 6851. I think we could see buyers attempt to defend above this “low volume node.” Consequently, I will look for the small bump in volume right above this, at 6857, to act as potential support.
There isn’t much more to the thesis going into tomorrow, as we have covered this same value area for weeks on end.
Daily Scenarios
Scenario A: If price is able to open and hold above the 6932 POC, I expect a rally back up to the VAH at 6968.
Scenario B: Upon price dropping below 6924, this would trigger another wave of selling down to 6889. I expect brief support here before a continuation lower to 6857.
That is all for today. I hope you all have a great session.
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