Did the Levy Break? OpEX aka ChopEx Friday

TLDR: Friday Watchlist at the bottom

$250 Challenge Account Update:

The account is back to even. In the past two days, I’ve traded the small account better. I made a major mistake and got greedy, which cost the account $20. Doesn’t seem like much, but in percentage terms, that’s 10%. What if it was 10k on a 100k account?

Thursday Watchlist Results:

We received the PPI numbers release premarket and the numbers came in hotter than expected. The hot print gapped the market down and most of the triggers were voided out due to the gap. The initial backtest trades also voided out due to gapping under their backtest levels. I mentioned for a trade at the open. Premarket, price was holding up at the 220 support level. The trade turned out well but I got greedy and didn’t take profits at my normal 40% mark.

was another good trade that triggered over a resistance level. It’s always hard to take breakout type trades when the market is slow. AirBnB, however, came in with great earnings and, more importantly, a positive market reaction. In this type of scenario where an individual ticker show momentum and strength even though the market is chopping around, generally, it is worth a shot. Another example of this scenario was today.

OpEx Tomorrow

Tomorrow the monthly options contracts expire. aka OpEx. What does this mean…Google it. For trading, it means there will be chop. The reason is simple. Market makers want their money. Put yourself in the shoes of a market maker who sells options contracts. You want ALL of your contracts to expire worthless. The best way to do that is to have a stock chop around at certain levels, all the time value gets evaporated, and the options contracts expire worthless or close to it. I’ll expand on this a bit more below since the S&P is at an interesting level.

A quick note if we get a gap up in the morning:

There won’t be anything off the watchlist to trade. If we get a good sized gap up, I will hunt for trades premarket to go after.

#ES_F E-Mini Futures

Upside: *4100-4125*, **4180**,4215, 4260, 4300

Downside: 4080, 4050, 4020*, 4000,3980-3975, 3950, 3915*

Today was a big day in terms of breaking levels. At the open, it looked like we were going to gap down, hold 4100, then chop around the rest of the day. However, one of the Fed members came in and mentioned a 0.50% Fed Funds rate hike. The market began selling off, didn’t hold 4125, then came down and closed almost dead on 4100.

After hours, futures started to sell off and S&P Futures lost 4100. I can’t emphasize enough what a big area 4100-4125 is to trade around. 4100 has been tested 7-8 times in the past two weeks and held every time. Has the levy finally broken?

I’m not sure either way going into tomorrow.

For the argument things head lower:

• We sold off into the close and barely hung onto the 4100 area. That action usually carries over into the next day.

• The rising dash trendline from the beginning of the year has breached. That line held up on this last bull run from the turn of the year.

• The sentiment is generally negative into tomorrow with fundamentals, aka the Fed, wanting to make sure “they aren’t repeating 70’s inflation” (I’m paraphrasing)

For the argument things hold or move back higher:

• Futures are selling off after hours and overnight. Anything can happen overnight while people are sleeping. Happens all the time with the big boys. They come in and push the market in one direction or the other in their favor leading into the open. It’s an open secret JPM was (is?) notorious for doing this. The firm and some traders were fined and criminally convicted. But I digress. The point is overnight moves aren’t as strong as normal trading hour moves. If we are heading lower with conviction, I expected that to happen before the closing bell.

• Technical formations: The higher highs and higher lows are still intact. Plus, the bull flag/pennant is (mostly) intact.

• 4100 is 4100. We keep coming back. Until we get far enough away or a move away with conviction, 4100 will be a magnet.

Finally, OpEx.

What does all this mean with OpEx? Again, put yourself in a market makers shoes. Going into an expiration day, what is the worse thing that can happen?

A massive move in one direction. They want to prevent that from happening.

But, it very well could happen. And if it does, it could exacerbate the move due to covering, gamma squeeze, hedging, etc.

For all the reasons above, I am very cautious going into tomorrow. Until a trend with conviction develops, I plan on treating every trade as a lotto or a trade that could go to zero.

Upside: 410-411*, 417, 420, 429, 436

Downside: 407,405, 403, 400-399*, 397, 393, 390*

Backtest Trade Idea Lotto: 405+ holds 407c (or 406c towards end of day)

The same principles as above apply to SPY. Notice the trend lines and levels look very similar. It would not be great for the bulls if SPY heads toward 405. That means 4100 was lost on #ES_F and the market is probably trending down. But, it is a good spot for a lotto play off of support. Most likely, the trade will require some monitoring and feel.

How does price get down to 405? What are the market leaders doing? Are there strong sectors among the weakness? etc. If you can’t figure out answers to those questions, this trade is not for you.

Upside: 307, 310, 313, 317

Downside: 303, 300, 297*, 302-303, 293, 290, 286

Backtest Trade Idea Lotto: 303 holds 305c (only take early in the day)

The QQQ trade idea is an earlier version of the SPY trade idea. Meaning, if QQQ holds around 303, it’s likely that 4100 (408ish on SPY). The candles from today on both indices were not good. One candle doesn’t make a trend. Both markets have shown strength over the past few weeks and I am willing to ride that trend since it hasn’t been broken (yet). BUT, it means sizing appropriately and knowing the trade entry is right at a level that could easily fail and stop out right away.

The reason I mention to take the trade early in the day is due to OpEx. Unless a trend develops, any trade in the indices is probably going to grind the premium away and it will be difficult to make a nice profit. On lottos, you want to make the risk to reward worthwhile just like any other trade. You could try the 304 calls later in the day, but again, not much time will be left and a major move will need to happen to get a big win.

Backtest Trade Idea: 79 holds 80c (void on relative weakness)

79-80 is a strong support level on AMD. It appears like a falling parallel channel has formed. The idea is the bottom of the channel lines up with the 79-80 support level. I would not give this trade much wiggle room. I plan on setting the trade up so it can go to zero or stop out right below 79.

Trade Idea: 128p<130 (can also take under 129)

ETSY’s selloff started with a downgrade and then continued further down with the rest of the market. The rising wedge that has formed is fairly clean. With its price coming down to test the bottom trendline and looking about to fail, it’s a good spot to take the break lower.

While today’s selloff in ETSY isn’t ideal for this type of trade (I would prefer the big move to happen at the breakout level), there is enough room to the next support level to make 30-40% off the trade. If 127.5ish is lost, the trade could easily go 2-3x down to 124. This is the type of trade I look for on a Friday with good risk to reward and defined levels.

Trade Idea: 170p<172 (Possibly take below premarket lows depending on gap)

That massive gap is staring us right in the face. While the gap is clear as can be, I’m not convinced moving into the gap is a done deal. Looking at the June thru September 2022 chop zone from 155-172, there is a lot of support to hold things up. Enough to stop a gap fill? Who knows. Regardless, the trade is worth taking. Especially, if the timing works out where #ES_F 4100 fails around the same time.

Trade Idea: 345p<350

Netflix has shown a lot of indecision in the past 3-4 weeks. This back and forth has amounted to a big consolidation area that’s not very clean. 350 is a big support level as well as a big, round number. With it being Friday and premiums being lower, this is a trade worth taking a shot at. If it was earlier in the week, I wouldn’t take this trade due to the higher price premiums. Meaning, if we only get a 3 point move, tomorrow it will yield about 60%. At the beginning of the week, that same move might only give 10-20%.

Be careful with 350 being a bounce zone. If 350 holds plus 4100 holds on #ES_F, the trade won’t work and will either chop to death or just reverse/go to zero.

Backtest Trade Idea Lotto: 196-197 holds 202.5c or 205c

The steep rising trendline off the lows from the start of the year has remained intact. Tomorrow that may be tested. The 196-197 level lines up with a general support area as well as that steep trendline. If the market and tech can reverse or if Tesla shows good relative strength, this could be a nice profiting trade.

From a fundamental view, Tesla will have to recall some cars for the full self driving feature. It is supposed to be done as an over the air update, in which case, the cost may be relatively minor.

On this one, I will let the trade go to zero. This trade needs too much wiggle room to make a stop on a Friday worthwhile.

Friday Watchlist: