Market outlook for the week from May 04-2023 to May 9-2023
The market had an impressive performance last week, especially on Friday leading the SPX to break a very important resistance level. Its monthly and weekly charts are bullish. In general the momentum is up and everything looks bullish, however in our years of trading we have learned that when everything looks too bearish or too bullish we must stop and think differently. Instead of looking at everything that looks bullish, look for what looks bearish.
In that sense this is our initial view for this week:
•We expect the overall market to make another move to the upside. This could happen as early as Monday, however for quite a few weeks Monday and Tuesday have behaved weakly after strong upward moves on Friday or Thursday. It is likely then that we will have a narrow range with a downward bias on Monday and/or possibly Tuesday. This scenario is favorable to the market because it allows the market to digest the gains and rest before another upward move.
•On the other side although we think the market will attempt another push higher it has little room to advance without hitting major resistance. For SPX first 4313 then 4323, for DIA 341, for QQQ first 456 then 460, for IWM 187. It’s important also to mentioned that 4300 is so far a big Gamma resistance in all expirations for this week, also is the biggest stack in the June monthly expiration, and if I remember well is the strike of the calls sold in the JPM collar.
From these levels there should be a pullback to retest the breakout zone which in the case of the SPX is at 4220. It should be taken into consideration that there is an important Gamma construction at 4250 which could act as immediate support.
We expect Nasdaq and SPX to struggle, and IWM and DIA to outperform.
We have always considered 4300 as the big resistance to beat, but after seeing the strong fight the SPX had to put up to get above 4200 it looks like 4200 was the real thing. The break above it with higher volume and expanding breadth certainly dampens any bearish ideas we might have had. The big pullback will be left for when recession, earnings season or an unexpected event hits.
On the other side, we need S5TH, our favorite indicator of SPX internal health, to hold above its 200DMA (surpassed last Friday), cross solidly above the 50% level and break above the rest of its MA and trend lines to catch up to the SPX. This one has to lead, not lag behind.
We will pass tomorrow Monday before the open the chart with the levels of the day, and the premarket review of the options market on the CBOE and the CME and see if there are any early stock recommendations or other trades.
One more thing, the best alternatives to trade a market in a tight range is to sell put or call spreads or both. Even resort to butterflies, strangles or even Iron Condors if the premiums are attractive enough to allow it. There are a couple of things we can look at before the market or at the market open to get an idea of whether the market will be stagnant or moving. We will talk more about this topic during the week.
This bulletin will be updated throughout the week.
See ya