March 6th, 2024

Today’s note starts off with the same thoughts as yesterday; we must consider two types of short-term market corrections: time or price. A time correction involves consolidation at the highs that does not deteriorate the big picture technicals. However, it can provoke frustration among bulls and bears alike, causing short-term day traders to overthink and overtrade.

This is precisely what I’m observing at the moment — a time correction in the market. If this were a major trend reversal, we wouldn’t have bounced overnight. Now, I feel that the market (in the short term) has exhausted longs and shorts, and we can expect a choppy, two-way tape.

However, I still lean towards bullishness rather than bearishness, as the primary trend is upward. This simply implies I favor long signals for short-term traders today over short signals. One of the main reasons I trade more options these days is because I can maintain a position longer if the market overshoots against me. Yesterday, I started to buy some calls when the NQ was at 17,950. Even though the market overshot my support, I was able to hold them until the close and eventually to this morning, where I have now gone flat. If I were in futures, I wouldn’t have been able to hold that position; my stop would’ve been hit. With options, I allow myself some time while also managing risk. I have to buy the options, and what I paid for them constitutes my risk.

NQ 18,088-100 is the key area for the bulls to regain if they wish to maintain the momentum. If we fail to rise above 18,100 today, I believe we head back to the 18,025-17,965 chop zone. That’s where I foresee a lot of today’s action. If we push below 17,965, the bears can regain some momentum, and we likely test 17,900, then 17,850. Below 17,850, I foresee a rapid move down to 17,750.

ES 5110-5120 is a critical area for bulls to sustain above in order to maintain momentum. If they can’t, then we are likely headed back down for a test of 5100. Below that, we might see 5085, followed possibly by 5070. Falling below 5070 hands momentum to the bears, and I envision a swift test of 5050. This will be a crucial point for the larger picture bulls to defend.

The RTY continues to show strength. If 2050 holds firm, I predict a test of 2150 in the upcoming week(s). With the minimal movement in rates, the atmosphere remains ripe for the RTY to gain some momentum. However, I currently have no interest in trading it, except for some IWM in my long-term portfolio.

I won’t be trading today because Federal Reserve Chair Powell will be delivering his Semiannual Monetary Policy Report to Congress before the U.S. House Financial Services Committee at 10 am ET. I’m not fond of the current state of the market. The tape suggests a choppy situation, which is not my preference.

Small and Smart.

Cheers, DELI

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