Week review · w/c 20 June 2022 · Short bias: sell the rallies, cover the breaks
OPEX week in review: a Sunday opening gap, an early-week balance, then a hawkish ECB and a new yearly low, leaving a double distribution week pivoting at 3712. Monthly, weekly and daily are all OTFD, so I'm selling rallies and covering on the breaks lower until buyers end that.
H 3843 | L 3639 | VPOC 3775 | VWAP 3732 | CLOSE 3675
The week in brief
I chose to highlight the week's moves using a 5-minute chart with a volume profile. Given the size of the moves after Sunday's opening gap, there are surprisingly few areas of interest to me going forward. The main focus will be whether buyers can protect the weekly lows at 3639, and whether they can close and hold above the mid-week gap at 3812-3723 and keep the auction above the early week's balance. The chart looks a little messy, apologies, but I tried to fit in some of the HTF targets in case we break below last week's lows.
A double distribution week, the pivot of which lies at the intersection of Tuesday's auction low and the high of Thursday and Friday's auction, 3712. The early week was balanced: no meaningful, sustained excursion, just two-way rotations from the outer extremes. The same PA followed in the lower distribution of the week's profile.
Day by day
Sunday and MondayThe Sunday opening gap and go is a reference. Monday's RTH session was overall balanced, consolidating the ON drop.
TuesdayTuesday was relatively balanced and closed mid-range, following a shallow drop lower that created a new yearly low at 3708. Carry it forward.
WednesdayWednesday saw a temporary break above Sunday's gap open to create the week's high, following an impulse rejection of an earlier move lower, which left behind a spike rejection tail and a low at 3723. Carry over both references. Monday, Tuesday and Wednesday made one balance.
ThursdayThursday's open and a failure to close the gap to the newly created yearly low emphasised a lack of willingness from buyers to support the auction at these levels. Sellers took control following a global sell-off stemming from a hawkish ECB.
Friday and OPEXFriday and the OPEX gyrations saw a continuation of the whippy weekly PA. An opening impulse higher was rejected into the gap and the previous day's high, 3712. Sellers again sensed weakness and tested the other side of the previous day's balance, succeeding in briefly breaking to a new yearly low, 3636.5, before shorts covered into the close. Very choppy. The Thursday and Friday balance lows are at 3636.
The weekly structure
Weekly b distribution, closed mid of the lower weekly distribution, and a 2-day balance (3712-3639).
Monthly, weekly and daily all OTFD.
OPEX weekly double distribution, pivot 3712. The gap is a meaningful reference into next week: 3712-3723.
Levels for next week
Levels marked on the HTF references, above and below.
Profile review and areas to observeI will be monitoring the week's VAL for a hold and an attempt to break above the week's lower distribution range. If the gap (3712-3723) can be successfully filled, I will be looking to see whether the auction can be maintained inside the prior area of balance and last week's upper distribution (3823-3843); short positioning is likely to get squeezed above here. The week's mid and volume ledge at 3741 will be a good first test.
Should the early week's auction drop below the week's VPOC at 3775, I will look for a push back to the weekly and yearly lows of 3639. The auction has been extremely weak, and I will maintain my short bias for now (buyers would have to end the daily and weekly OTFD for me to alter course). So for now I am looking to sell rallies and cover on the breaks lower. Balance rules apply.
Data ahead
HighlightsFlash PMIs, CPI and eurozone sentiment data in focus. From IHS Markit / S&P Global: flash PMIs will be released towards the end of the week for the US, UK, eurozone, Japan and Australia. The surveys will offer a first look at worldwide economic conditions in June, and will follow CPI data for the UK, Canada, Singapore, Japan and Malaysia. Key releases such as the eurozone, US and India current accounts, and UK retail sales, are also lined up.
Events calendarSource: Investopedia.
- Monday, June 20: US markets holiday (Juneteenth).
- Tuesday, June 21: Existing Home Sales (May); Chicago Fed National Index (May).
- Wednesday, June 22: Stellantis (STLA) reports earnings; Fed Chair Powell testimony before Congress (US Senate Banking Committee); UK Inflation Rate (May); Eurozone Consumer Confidence (June).
- Thursday, June 23: Accenture (ACN), FedEx (FDX), Darden Restaurants (DRI), BlackBerry (BB) and Rite Aid (RAD) report earnings; Fed Chair Powell testimony before Congress (House Financial Services Committee); S&P Global Composite PMI, flash estimate (June); UK Consumer Confidence (June); Japan Inflation Rate (May).
- Friday, June 24: Paychex (PAYX) and CarMax (KMX) report earnings; UK Retail Sales (May); New Home Sales (May); Michigan Consumer Sentiment Index, final reading (June).
Powell addresses CongressOn Wednesday and Thursday, Fed Chair Jerome Powell addresses the US Congress in his two-day semiannual testimony on monetary policy to the Senate Banking Committee and the House Financial Services Committee. It comes a week after the Fed's largest rate hike in 28 years, three-quarters of a percentage point on the federal funds rate. Addressing high inflation has become the Fed's top priority in recent months, and Powell is likely to draw attention to it.
May home salesOn Tuesday, the National Association of Realtors (NAR) releases its May report on existing home sales, projected to have fallen to 5.4 million in May from 5.61 million in April. That compares with a pandemic-era peak of 6.65 million in January 2021, and would be the lowest figure since June 2020, as homebuyers are squeezed by rising mortgage rates and declining affordability. Later in the week, the US Census Bureau releases new home sales for May, projected to have declined slightly to 580,000 from 591,000 in April. That would mark the lowest figure since late 2018, below the April 2020 low of 582,000.
June consumer sentimentOn Friday we get the final reading of the University of Michigan's June Consumer Sentiment Index (MSCI). The preliminary reading last week showed sentiment falling to a record low: 50.2, the lowest in the index's history, dating back to 1952. Rising prices, particularly for gasoline and food, have weighed on sentiment in recent months. Consumer confidence readings for the eurozone and the UK are due on Wednesday and Thursday respectively. (Source: Investopedia.)
Weekend reading
OPEXThis is an interesting, statistically sound look at how IV isn't necessarily affected by the actual event. Triple or quadruple witching is just the expiry of existing options. Volume increases as dealers roll over positions taken by participants (you). There's nothing spooky about the whole thing, but there are some general characteristics of the week that should be observed. It's not for discussion today, but tastytrade's Market Measures episode on triple witching and IV sheds some light.
Mental gameI can't help finding incredible life teachings when watching Star Wars. Here's an excellent piece by Artemis Fund Managers that talks about our need for immediate gratification, and how we must forgo such desires if we are to succeed. Think about taking profits too quickly, and see if you can apply this to your trading thought process.
Key lessons
Trade well and prosper.
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