Weekly newsletter of MYstylework - Issue #64
PUSH FORWARD... NO RETURN...
PUSH FORWARD...NO RETURN
For several weeks now, I have been hiking up Bukit Besi up till the telecoms tower and then headed back from there. This week, I started early and upon reaching the telecoms tower, I decided to take my adventure one notch up and went further to see what's in store downhill after the telecoms tower. The trail went deep down and after 20+ minutes, I am still going down, quite low actually as I start to see the some buildings across some openings in the dense forest.
I looked back and then thought to myself, it is going to be hell to hike back up. It's easy going down but going up is not as easy.... okay....let's not think too much of how to get back up and see what is in store in front... there was a small sign that a waterfall is ahead...lets move on...
After another several minutes uphike this time, I reached the waterfall, a small one but it's refreshing cooling water and also a good rest place for me as I was really breathless.
In real life, we also go on journeys or projects...as we start, it looks difficult and as we work on, it seems never ending. Then we reach milestones as pitstops and probably small success in between. Once there, we decide if we want to take the next step up and when it becomes more difficult, we start to doubt ourselves and wonder if we should turn back or persevere ahead. These are normal for everyone to go through.
Recall earlier, I mentioned the upward trail back which looks hellish... instead of using the same way back, I continued forward on the track and although it also involves going uphill and you seem lost in the middle of the jungle, surprisingly the trail is just 10 minutes out instead of 30+ minutes the way I came in.... Of course I had doubts if that is the way out as this was my first time this deep....but along the way I got confirmation from fellow incoming hikers that I am on the right track...
We all go along our journey, and along it, things can become more difficult and surprisingly also, success is just a corner away, we do not know which corner but its definitely close by....just persevere and move ahead...don't go back...push forward...
Success is just around the corner...
SPX - 4158
At last, we broke the 7th straight down week and at the same time broken also a lower low and lower high pattern forming a very nice "W" bottom and above the free and clear line (4090).... next price action to see a retracement down to the free and clear line and looking at a bounce and bullish confirmation. If we hold above 4090, we will see next resistance at the 50 moving average.
The few things we spoke about that is holding the market down:-
US Recession and inflation
China - Shanghai Lockdown
Russia-Ukraine conflict
The current situation?....
#1 inflation seems to have topped and starts to be controlled as rate hikes are now being implemented (75 bps since March and subsequent 50 bps in the next 2 coming hike)
#2 Ease of lockdown has since been implemented in several districts and expected more to be opened up in the following weeks....supply chain is expected to improve going forward.
#3 still ongoing.... energy and oil continue to be high as long as the conflict still exist....
with #1 and #2 problem easing, the US economy and market is expected to be improving and #3 as long as it remains within Russia-Ukraine, there should be less impact to the markets...
We will continue to monitor the price action to see the chart pattern breaching resistance and forming upward moving averages and crossings of lower timeframes MAs from below to be back on bullish trade momentum.
Trading for week to be around 4000 to 4350 range. Monday is a market holiday.
NDX - 12681
BOOM....NDX shot up 845 points, a whopping 7.15% up for the week. Bad week for short sellers as they need to frantically chase to cover their positions. Great week for long term investors as they see some recoveries for their portfolio. In any case, you would also have noticed for the past 2 weeks, the value of downs in your portfolio was getting less severe. Even during a very bad down day of more than 1% down, you see your losses in your portfolio is smaller as compared to the ones experienced before mid May. Perhaps a small sign of capitulation ie. less weak hands exist in the market.
Not to say that it will be a one way up. But if it holds, it may be ranging for a while with this as the bottom range. When a range pattern appears, we can then go on neutral options strategies like Iron Condors. Instead of picking any particular stocks, you can just do it on QQQ, SPY or SPX to have less single stock volatility. The IVs is still alleviated for time being, as VIX stays at 25+.
For NDX, we need to see it hold above 12,573 next week to confirm a breakout pattern and not a bull trap. If it retraces below 12,573 level, it has to close back above with a bullish pinbar above to show a bullish price action. If it closes below with a bearish pinbar next week, more likely it fails to turn bullish and is just a mere short bear market relief rally.
NDX trading range for the week is 11950 and 13400.
PRICE ACTION - "W" PATTERN
A "W" price action pattern or also commonly known as double bottom is formed when the price action retest a previous low and reverses back above the previous low forming a "W" price action. It can be the first sign of a potential downward reversal.
For a more potent double bottom price action, the prices goes up above the previous low and then retraces back to previous low and closing with a bullish candle above the previous low. Which means it makes a small "u turn" back before shooting up.
Example of the current SPX which has formed a double bottom last week on daily timeframe and has also cleared above the neckline of the high point of the W ie. free and clear line.
However, we also need to be cautious that we do not get into a bull trap of W patterns as we need to have further confirmations to have a higher probability trade. Confirmations we can wait are like:-
Crossing of price above the top of W neckline, ie. free and clear line.
Retracements below the W neckline if it has cross above the W high point, followed by a bullish candle close above the neckline.
Retracements below the bottom of the W pattern (if it has not crossed the neckline), followed by a bullish candle close above the previous low.
If this does not happen and retraces lower from the top of the "W" and forms a bearish candle, then the "W" pattern now changes to a "M" pattern which is a bearish price action - opposite of the "W" price action.
One consolation of the current, SPX price action is that the lower lows and lower highs is broken (LLLH). Had it not be broken, it may continue the downtrend of LLLH price action.
The other thing is as we had rallied for a week and stochastics is now oversold, a slight retracement is possible and hence the earlier confirmation we spoke about may be possible before rallying again. Nevertheless, a continued strong momentum without retracement can also be possible as the weekly timeframe is still oversold.
Review our past Traders Talk where we speak more about these "W" and "M" price action.
TRADERS TALK
Did you hear last week's Traders Talk?
We had a great topic and so much insight on trading was given out. Apologies for the bad and intermittent connection.
Listen to Traders Talk Series 48 if you have not done so. View Past Traders Talk here.
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DISCLOSURES
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
MYstyework is an Online Financial Literacy Educator and materials provided is solely by MYstylework and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. MYstylework, through its contents, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. MYstylework is not in the business of transacting securities trades or an investment adviser.