Peace Pop
RLT Newsletter
Just when it seemed like we were going to get an inside day with relatively low volatility, Trump came flying off the top rope with a tweet suggesting that a peace deal could be signed this weekend. The market immediately ripped higher and didn’t look back all day long.
It is still wild to me how much this market reacts to Trump tweets, especially ones that have to do with the war. One small signal that a peace deal may be signed and the QQQ puts in a 3% bullish candle. That speaks to the underlying strength of this market and suggests that investors were eager to get long regardless of the news catalyst. The SPY now has a pretty solid double bottom off of the gap fill and major support that certainly looks like it should go higher. Whether it does or not may just hinge on the President’s tweets.
SPY 65 Min Chart
SpaceX IPO
If we do get the Strait of Hormuz reopening this weekend, that would be a significant development and could provide a big boost for equities next week.
Ironically, that would come at a time when just about everyone, myself included, has been talking about the SpaceX IPO potentially marking a market top. The problem with that thesis is that the QQQ has already corrected roughly 8% over the last week. It is difficult for an event to mark the top when the market has already undergone a meaningful pullback.
At this point, I think the SpaceX IPO is likely a non-event for the broader market. There has been so much consensus around the idea that it would mark a top that the positioning may have already occurred. If institutions were selling large-cap technology names to raise capital for SpaceX shares, that process likely began weeks ago and may have contributed to the recent selling pressure.
Crude Oil and the Dollar
If we do not get a deal over the weekend, oil prices and inflation concerns remain lingering risks. Crude oil is currently sitting right on top of its 100-day SMA. If that level holds and oil continues higher, we are likely back to the same environment we have been in for the last two months, with continued sideways market action. However, if crude breaks below the 100-day SMA, that would be a bullish development for equities.
We also saw DXY reject the $100 level once again. That resistance remains incredibly strong. As long as DXY stays below $100, I do not see much reason to focus on the chart. However, if it starts breaking above $100, it would represent a breakout from a base that has been forming for over a year. A move like that could lead to a strong advance in the dollar, which would likely create significant headwinds for equities.
DXY Daily Chart
Key Levels to Watch
Yesterday we discussed how many of the major technology names, and many of the stocks I trade most frequently, were either sitting directly on support or approaching key support zones. Thursday’s price action pushed several of them into those key levels, and the supports held across the board.
NVDA, GOOGL, and AVGO all bounced before reaching their 100-day SMAs. While that is constructive from a bullish standpoint, it is also somewhat frustrating. Much like the unfilled gap on QQQ below current prices, these untouched support levels leave the door open for another quick drop. As a result, it becomes more difficult to establish trades with great risk-to-reward profiles because I do not really see the bullish thesis failing until those moving averages break, leaving a pretty wide stop from Thursday’s price.
NVDA Daily Chart
Outlook & Elliot Wave
Volatility is still very much present, and most names remain below Tuesday’s candle highs. My expectation is that we still have room for a bit more upside, even if this ultimately proves to be a lower-high scenario.
Based on my Elliott Wave count for the more bearish case, I would expect some type of pullback, perhaps a small gap down, followed by buyers stepping in and pushing prices to marginal new highs. Assuming we gap down on Friday, buyers need to show up relatively quickly and attempt to push the market above Thursday’s highs.
I always like scenarios where even the more bearish outcome still offers a path to profitability. If the market simply pulls back and then rallies into a lower high, there should still be opportunities to squeeze out gains.
Of course, if price collapses, starts breaking key support levels, and takes out Thursday’s lows, that would change the picture and trigger stops and protection. In that scenario, I will take some losses and hedge, regroup, and begin identifying lower support zones where risk-to-reward becomes favorable again.
For now, I will be looking to continue to buy dips and manage risk aggressively below Thursday’s and Tuesday’s lows. Perhaps we put in a lower high and continue correcting. Or perhaps the market simply launches from here and makes another run toward all-time highs. In either scenario I make money. It is only in the scenario where we fall straight down that I lose.
QQQ Elliot Wave Correction
