Welcome back, everyone. I hope you all had a great weekend. In case you missed it, I released an educational post covering volume profile. This took considerable time to put together, and I would like to hear your feedback. The first portion covers general market knowledge, then shifts focus toward technicals and average volume. This later ties into how you can apply different approaches using volume profile. I highly recommend giving it a read and letting me know your thoughts.
All newsletters, whether daily or weekly, are written the night prior. Drastic changes can occur in the overnight session that may alter the levels we use during the actual session. Currently, the market is sliding lower and attempting to hit a new low. By morning, we could see a larger gap down or even a sharp bounce back to the upside. If the levels need updating, I will send out a chat update during the session.
Now, let’s cover some stocks from the watchlist. Last week, we saw very strong moves to the downside in the broader market. Despite strong earnings reports and bullish news catalysts, the market simply cannot hold its ground. Furthermore, even crypto and metals are seeing strong selling, with silver posting its largest down day in history.
We are witnessing quite the unraveling; sectors that led all last year are now seeing pressure, while other industries, such as Industrials, Consumer Defensive, Energy, and Basic Materials have outperformed YTD. There is a clear shift of funds moving from last year’s “hot” sectors into “safe-haven” companies.
Stock Watchlist Updates
Amazon: We called for a long at the lower end of a pennant around 227. Price bounced directly off this level and saw a sharp move to the upper end of the pennant at 247. We are now seeing sellers step in, taking price to the middle ground between the boundaries. Interestingly, Jim Cramer posted a bearish thesis right before Amazon put in that low. Not only were we already bullish, but we also know the value of not following that history. Everything pointed toward the stock heading higher. As long as Amazon remains inside this technical setup, I believe we will see a move toward 300. This is a very clean setup: you long at the lower boundary with a “line in the sand” stop on a daily close below the pennant.
GameStop: This stock saw strong upside after breaking out of a downtrend dating back to May. There has been plenty of news circulating, especially regarding the CEO’s comments about shifting to a “Warren Buffett” style of management—using company funds to buy shares in other profitable companies. While this is the Berkshire Hathaway blueprint, it currently feels like hype-building. I don’t know if he can achieve those goals, and frankly, I don’t care. All that matters is if price remains above the breakout for a move toward 30. Don’t fall for the “Goldilocks” story; focus on the facts. Look at Oracle: they promised a 70% revenue increase and instead lost money and slashed projections, leading the stock to shave 30% off its highs. It always comes down to whether a company is making money and meeting its promises.
The Importance of Validated Signals
I want to reflect on the importance of valid versus invalid signals. I focus on daily and weekly charts for stocks. Whenever you have a setup, you must look for a daily or weekly close to validate the move. If you expect a breakout, you need a close above that level—the same applies to support.
Palantir is a perfect example. We expected a bounce off the lower end of a daily pennant, but price simply closed below support and has continued to slide. By accepting the signal that the setup was invalidated and closing the position, you would have walked away with a small loss. Instead, the stock is now down nearly 15% below that breakdown level.
There is zero room for error. You must avoid focusing on your emotions or picturing “fake-out” scenarios to justify holding a losing trade. If your plan says to exit on a close below a certain level, follow it. Avoiding the transition from “trader” to “unintentional investor” is key to survival. Make a plan, trade the plan.
Economic Calendar
Monday: ISM Manufacturing PMI
Tuesday: JOLTs Job Openings
Wednesday: ISM Services PMI
Thursday: None.
Friday: NFP & Unemployment Rate
S&P Levels
We have another interesting week ahead as price finished last week back inside the massive value area. Volume continues to build above the 6900 handle, but many breakout attempts over 7000 have failed. Even with strong earnings, the market continues to slide.
