Weekly Review and Outlook: October 23-27
Coming to a head.
Image 1. Unflattering earnings. META’s Zuckerberg.
Notes
Action in oil (CL) and gold (GC) confirms our short bias last week due to geopolitical concerns. Regardless of what your political view may be, it is without argument that this is a major pivot point in global relations - namely between the western order since at least the collapse of the Soviet Union, and the rising power and interests of the multipolar world. Unlike other observers, I do believe the conflict will pivot around Syria - and not Gaza - given the crossroads of these two systems in this country and their involvement there in the last decade. I keep repeating that tail even risk is very high as there are unknowns that no reasonable amount of hedging can preclude. For example an oil shock. Or a nuclear exchange but let’s not get down this path yet.
What is interesting is the fortune of BTC in all this, which seems like it has decoupled from a correlation with the S&P7 (especially TSLA; I am open to your views on this one). Is it indeed a new safe haven or another outlet for liquidity from equities (or the bond market but I really doubt this)? I think it is the latter case, as well as a potential - bear with me here - bet against the dollar. While holding cash does offer an attractive return, the resilience of BTC in recent weeks may be seen as an opportunity vis-à-vis cash or for that matter falling bond prices.
The real test of BTC above the psych 30k level will be 31k, where we have trapped longs above. A couple of closes above the latter could see 33.5k tested. However the correlation with equities will be interesting to note if indeed a reversal in equity bearishness, could manifest as BTC resistance. In which case support may be expected at 27.5k.
Do I think that BTC is looking at a pause here? Perhaps…and with that perhaps equity just might see some relief, wink wink. Importantly oil is a good risk indicator in times of geopolitical turmoil - here at these level I think 92 is a good near-term level to watch. Momentum above 95 could see 100 tested and I do not consider this case positive for the equities. I will be doing a further analysis of gold in the coming days, although I think gold closing a few times over 2000 can see further upside, despite events in the Levant. In this case I think gold may even be supportive of equities, especially as the dollar (DXY) weakens and bonds (TLT) find some solid ground.
In the meantime, read on below for a key line-in-sand for the buyers this week in ES.
Week in Review
And that’s a trap! Following an enthusiastic ‘open-drive’ on Monday with an afternoon dip seemingly confirming interest, the uh-oh moment that should have been was the failure to make a NHOD and the close below our key level from last week of 4405. The p-shape distribution suggested buyer absorption. The following day was worth studying, as an initial look below and fail breaking the prior five day balance high turned into a look above and fail once the gap above was successfully defended. The identical close to Monday’s revealed that sellers were indeed still very present above 4400.
Wednesday saw a break of balance to the downside, with sellers successfully closing near the lows. It is usually advised to go with the break of balance, and this played out into Friday as sellers put an end to weekly OTFU. This also marked a few achievements for sellers a) the close below the 200D SMA; and b) the first close below YVWAP since March. That leaves us with just a few points left to a June gap close at 4239.75, and an untested ETH low at 4235.50. The weekly profile was ragged but effectively a triple distribution around 4284 and 4324.
Image 2. Prior week profile in context
The VIX has closed above 20 twice - not seen since May of this year. To reiterate, macro headwinds as well as hot geopolitical tensions staring into a potential abyss (oil shock, anyone?) don’t exactly reassure longs. This doesn’t mean there is no relief in sight, and this is what we as traders identify in trading the short-term. Both short-term and medium-term value are at 4402 (TPOC), well above Friday’s close. For next week, I will be interested to see if longs can migrate price up towards last week’s value, or if sellers are able to pursue momentum below a four week balance to open up lower targets. To gauge the week’s auction, Friday’s failed afternoon push above 4285 suggests a critical pivot - also below an area of singles and three-day balance VAH ahead of the prior Oct 6 low and subsequent short-covering. So: more short covering into and above this level, or do we really mean it this time?
Next Week’s Outlook
Pivot on the week 4285. IF we see an initial push this may be indicative of short-covering, the tell will be the volume and initiation above this key level. If sellers hold the line, a break of the PWL could be expected, opening up lower targets. A reclaim of the pivot (D close above) could mean a return to prior week’s value area. Lastly, failed seller initiation early on could build strength for a counter-move preventing short- and medium-term value from being accepted lower.
I will use VIX 20 as a LIS for sellers - a close below 18.7 could put sellers on defensive. Watch AAPL at 170 and TSLA 220 as a gauge of buyer/seller strength. A reminder that oil above 95 is likely a bearish event. Finally, recall major tech earnings this weeks, with MSFT, GOOG, META, and AMZN on tap.
4410 passive seller
4385 buyside liquidity
4367 HVN
4328 PWVAL
4285 weekly pivot
4239.75 daily FVG
4175 May POC
4115 sellside liquidity
a) Buyers ideally follow short-covering or failed seller initiation with fresh buying to close above pivot 4285 on volume. This then targets a return above prior week VAL. A successful close above 4350 can setup a test of 4367 and 4385. In any case, 4350 is likely to be well-defended.
A surprise event (like earnings blowout, Chair Powell committing to a rate cut, or a cease-fire in the Levant) could spark a recovery rally targeting 4390-4110. Buyer LIS is 4200.
b) Successful initiative below PWL on volume can see momentum into 4200 and prior level 4190 May VAH, and May POC 4175 below. The final weekly target is significant sellside liquidity at 4115 coinciding with May VAL, although 4150 is a major psych level on the way. Sellers’ LIS this week is 4325.
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