fbpx
‪(720) 819-5927‬ support@25koptionschallenge.com

Market Outlook for the week of 3/14 – 3/18

Extreme volatility, keep trading volume low.

 

I will keep this update very short as there is no point slicing and dicing things too much when the reality is right in front of you. Here is the short story

  • Markets are in a downtrend so don’t bother calling out the bottom unless we break the downward price channel we are stuck in.
  • Expect extreme volatility next week as we have PPI numbers, FOMC, War, Triple Witching, Opex lined up.
  • Keep trading to negligible or very low numbers.
  • I will stick to a max of 2-3 trades in my largest of accounts and will not trade unil FOMC is done (i.e Wednesday) 

As if we haven’t had our share of volatility this year, next week brings a boat load of market moving events together. Rising inflation which initially took down this market has taken a back seat as Putin holds the markets (and everything else) hostage with his needless war. Although we are still in correction territory, the damage that the geo-political situation can cause to the World Economy accompanied by all-time high inflation has caused many analysts and banks to start predicting that the odds of a Bear Market are increasing astronomically. A positive reaction to the interest rate hikes accompanied with a resolution to the war does have the potential of catapulting these markets into a COVID 2020 like recovery.

But since we don’t know how the story will unfold, the only sane advice is to keep trading volume low especially if you have a smaller account where every losing trade can make or break you. Once the markets pick a direction, there will be plenty of opportunities to make profits. As traders, we sometimes feel compelled to “do something” when things go against us, but we are going through a time period where “do nothing” can be a wonderful thing.

What to watch for in Earnings next week :

Earnings season has almost passed us with a few earnings still rolling in here and there. We have 4 stocks from our watch-list reporting next week, but I will continue to keep trading volume low to approx. 2-3 trades next week. I will share trade ideas in our group for anybody looking to learn from trade setups, but I will personally not take any trades until the FOMC meeting next Wednesday.   

Macro Analysis

VIX shot up to 38 last week before settling back to 30. But with the market moving events this week, I expect to go back up again. With VIX this high, small accounts should not trade and larger accounts should keep trading to a minimum.

QQQ observations – (Ignoring SPY/DIA this week as they are all moving in sync)

I used SPY for my analysis last week, but will use QQQ this time. All major indices are behaving the same so there is no point regurgitating the same information over and over again. The entire market has been stuck in a downward channel and I have drawn that channel with respect to QQQ below. For markets to move up, more money needs to flow in than what goes out. But with the level of uncertainty that is out there, there is no reason to dump money into this market and the increasing outflows and money on the sidelines is manifesting itself in a downward channel. 

What to watch for in the coming week

  • Bullish: If QQQ takes out $340, we have a chance of breaking this downward price-channel. Since, this has become such a news driven market, this will only happen if we start getting positive news on the war front and Jerome Powell sets clear expectations regarding rate hikes this year.   
  • Bearish: Look out below! If the war situation worsens, this downward channel has price targets of 315 and then even all the way down to 300!!! 
  • Sideways: If the markets have a nothing burger reaction to the rate hikes and the war situation stays unresolved, I expect QQQ, DIA, SPY to start heading into a sideways consolidation just like IWM and Bitcoin are stuck in. 

IWM observations (Range-bound)  

  1. Although we are seeing a downward price channel in QQQ, DIA, SPY etc. IWM has been range bound since 1/20. The range is between $190 and $205.
  2. I don’t expect IWM to do anything unless the markets pick a direction. If the war drags on, I expect other indices to go into this pattern as well. 

Bitcoin (range-bound)

  1. We have been using Bitcoin as a measure of the market’s “risk-on” sentiment and it has become rangebound between 35k – 45K. This further reflects the indecision and lack of conviction in market participants.
  2. Bitcoin needs to blast past 48K for a bull scenario to play out. Or, fall below $30K for a bear scenario to unfold.

Portfolio Allocation:

As we are well into the 3rd month of this “market crash”, I have been keeping my trading frequency very low. I haven’t stopped trading and am still taking small trades on every sign of a recovery.  I usually take upto 4 contracts per trade on my larger account but have been taking 1 contract trades for months now. I intend to keep doing this until the markets pick a direction.

Key Takeaway: Major market moving week ahead. Any positive reaction to the Fed or resolution to the war situation, will put an end to this madness. On the flip side, don’t be surprised to see another leg lower if the war situation worsens or the Fed surprises us with something nasty.

1 Comment

  1. Nayan

    Thanks for the analysis

    Reply

Submit a Comment

Your email address will not be published.

Free no-obligation 7-day trial The Bull Run is just getting started...

The massive 5 month long correction is behind us and the Bull run is just getting started. Are you ready to take advantage of it?