April 9th, 2024

The three O’s: overthinking, overreading, and overtrading are common pitfalls in this tight market. With indexes boxed into narrow ranges and volatility sucked out, we’re seeing a quiet upward grind. Less seasoned traders might subconsciously start faltering, feeling an urge to force action. Time can feel like an enemy for traders in these markets, while for long-term investors, it’s a friend. It’s crucial to remember markets go through cycles like these.

Given the numerous crosswinds currently present, it’s critical to focus on your short-term strategy and refine it during these moments. Strive to be a better executor in this environment. Show restraint, but keep learning. Remember how this type of market impacts your strategy. We’re uncertain about the duration of this environment, yet it’s our job to emerge as better traders, hopefully with increased capital.

My insights for trading this tape remain unchanged from yesterday. Surveying the indexes this morning, markets appear rangebound in the short term. However, medium to long-term trends still heavily favor the bullish side. Let’s go to the charts…

The NQ came within striking distance of its YTD AVWAP and rebounded, yet again. This persistent defense is a positive sign for the bulls, as they refuse to dwell on the lows of any given move. I’ll be keeping a close eye on the key NQ levels of 18,432, 18,226, and 17,970. If we exceed 18,432, it reinstates new highs for the year and hands momentum back to the bulls. 18,226 serves as my short-term pivot. Any upward movement from here maintains pressure on shorts and we will look to test 18,432. However, a drop below 18,226 brings recent lows and the YTD AVWAP support into play around the 17,970 area.

The ES has broken out of its upward channel, only to plunge right back in. The ES maintains a tight upward trend which, in my opinion, is a grind and less favorable for day trader rotations. Look out for the key levels of 5290, 5226, 5162. As long as the bulls can maintain above 5226, I anticipate a gradual climb back up, with momentum returning to the bulls’ side with daily closes above 5290. Expect a slow, choppy tape in ES.

The performance of RTY is largely influenced by ZN. If ZN continues to underperform, I don’t predict a surge of buyers for RTY. While this doesn’t eliminate the possibility of a RTY rally, it does hint at potential limitations on the upside. Therefore, be cautious about setting overly ambitious targets. The critical level for bulls to maintain in RTY is 2089, failing which we might see a retest of the YTD AVWAP at 2044. If it stays above 2089, I anticipate a rough, disorganized rally.

Keep it light and tight.

Cheers, DELI

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