Morning Scoop
The CPI figures were released this morning and they met expectations. We are now waiting to see how the markets will respond and how we can proceed in the future. This morning, I will examine a trade that I did not take yesterday and analyze why. Apart from that, let’s take a look at the current market conditions.
Markets
- News: The CPI was released this morning, and the discussed numbers indicate that it is 5.5%, as predicted. This is a decrease from last month’s figure of 5.6%.
- S&P 500 futures update: The markets declined as the numbers were being released, but now we have rebounded and returned to the upper end of the channel indicated by this white line.
- Forecast: Right now, I see caution as we are currently up against this trend line. It is possible that we could break it, but surpassing the 200-day may pose a challenge.
Chart Analysis
Reviewing the Tape
While trying out this strategy, I still feel reluctant to take a trade. However, I believe it’s the current market conditions that are holding me back from taking on too much risk. The recent market movements have been brutal, and while a seasoned veteran day trader or scalper might be enjoying this high frequency trading environment, I prefer to approach my trades with ease. I set my stop losses, calculate my targets, and then watch as the trade plays out. I don’t want the added stress of analyzing a 1-minute chart and making decisions within 45 seconds to a minute.
That being said, I have confidence in my strategy, but I need to do more backtesting to gain further confidence. Now, let’s dive into this QQQ chart and examine why I chose to stay out of the trade.
Walking Through the Process
When I look at my chart in the morning, I search for setups that align with my edge. Additionally, I take into account the broader market conditions since they can impact my trades.
Today, I noticed that QQQ was trading below its 200-day moving average, indicated by the yellow line. This was a good sign for me as I was looking to short. Next, I observed that we had built a bit of resistance, indicated by the red rectangle. At this point, I was waiting for the price to drop below the two moving averages in purple and orange, which respectively represented the 8 and 13-day averages. Finally, I saw that the MACD had lost steam and was turning red. With all these indicators lining up, I could have taken the trade, but ultimately, I decided not to.
Reading the Field
Similar to how a quarterback scans the field and looks for the best opportunity, traders do the same. Although I was interested in the trade, something was holding me back. I need to figure out why this was the case so I can evaluate whether my analysis makes sense.
Firstly, I was uncomfortable with the fact that the 200-day moving average was flat. I prefer it to be facing up or down, especially when I’m looking to short.
Secondly, the MACD shot straight up at the top of the white line, then the price dropped sharply. However, the MACD recovered well, and despite the price being well below the previous level, the momentum was still high.
Lastly, it was the end of the day, and I knew that CPI was coming out the following morning. Why take the risk when I had no idea which direction the market was going to go? I decided to pass on the trade and wait for another day.
Wrap-up
That’s all for this morning. The numbers have been released, and now we must wait for the market to dictate its direction. It is still a challenging environment, and we must remain vigilant. This market can be tough, and it can easily drive you insane if you are not careful. Therefore, proceed with caution until further notice, which seems to be a regular occurrence these days.
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