Weekly Review and Outlook: October 16-20

Gold, oil, and USD: the war trade

Image 1. This time is really different! Harry Hopps World War One propaganda

Notes

Due to an issue with my substack and/or browser, the weekly write-up for today was lost in its entirety. Unfortunately I will be posting an abridged review below due to time constraints. If I am able to recover lost work, I will post that to supersede the post below. Trust me, I am just as devastated as you are.

We are without a doubt at a very tenuous place in global affairs. Thus the uncertainty is more acute and present than usual, and the risk of a tail event high. More volatile markets require more risk to effect a trade, but at the same time risk coupled with more uncertainty puts strain on a reliable system. One way to address this is to reduce size. Another may be to take less trades.

I will be opening up some of the further levels a s a result, skewed to the downside. Intraday ranges may be wider as a results as well. Finally, VIX and gold will play a larger role in gauging day to day context. Realistically with gold (GC), crude, and the VIX spiking like they did on Friday these are signals we cannot ignore. That doesn’t mean cash out your portfolio but calculate risks accordingly. Especially with ES 9.5% off the highs and much buoyancy due to high multiples in a handful of tech stocks.

Image 2. Prior week profile in context

Week in Review

After some uncertainty on Monday, but closing on the upper distribution after an intraday breakout, Tuesday saw continuation over 4400 and into the September gap. However sellers held firm. Following three days of balance (Thursday closing in the lower half of its distribution… see a resemblance?) Friday saw a liquidation below 4400 after holding our 4407 level (that was a good call!)which closed below the PWH. The week formed a ‘p-shape’ profile in contrast to the ‘b-shape’ the week before. See another resemblance?

Ultimately we are in a five day balance (in daily OTFD) of a three week balance in monthly OTFD. Sellers are still in control as long as pressure is kept below 4400 and a monthly high is not broken. I would characterize the market as currently in balance awaiting new market generated information (MGI). This is against the backdrop of geopolitical events are we mentioned above, and earnings season upon us.

Next Week’s Outlook

Pivot on the week 4359: level of the most recent breakout and prior week’s VAL (4363). Buyer strength will be tested this week. How much new buying volume was present in the latest run up? If Friday’s break is bought early on, this is indicative of weak longs exiting, fresh volume would strengthen the market for potential tests to the upside. A return to value prior to the breakout, or roughly 4276 POC, would signify overall weakness and primarily short-covering driven price action.

Note VIX levels 20.50 and 15.50 in weekly context. TSLA below 247.50 and AAPL under 177.70 can signal weakness. Oil above 95 is likely a bearish event.

• 4476-93 singles / poor structure

• 4446 gap fill

• 4419 lower distribution high

• 4419 poor high

• 4359 weekly pivot

• 4310 singles

• 4278 poor structure

• 4239.75 daily FVG

• 4175 May POC

• 4115 sellside liquidity

a) Buyers look to defend 4311 to spend time above pivot, targeting a return to PW value around 4399. A close above 4407 (break of daily OTFD) could set up a break of the poor high 4419, increasing the likelihood of a gap fill to 4446 where longer-term sellers are likely to be waiting through to poor structure above at 4476.

b) Sellers meanwhile closing below 4350 can target the PWL 4316. Their next mission would be a fill of the prior Friday’s poor structure to 4292 and 4278. Any close below that key level could set up a RTH break of 4250, with the critical 4240 FVG below.

Below this level is the May POC 4175.

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