April 22nd, 2024

We are still in a range expansion. The markets may be bouncing this morning, but there’s still no clear sign that a low is in place to trade off of. The daily Bollinger Bands continue to widen on the daily charts, indicating range expansion, and the 10-year yields continue to make new highs. This environment suggests that we can expect wide ranges, and no rally or selloff is safe, as the market can create significant movements in both directions.

With a week full of big tech earnings, we, as index traders, will be influenced by how these earnings impact their respective stocks. The market currently holds weak-handed positions, and with low volume, market movements can be swift in any direction. This situation is where a low could potentially form. Both sides may face exhaustion this week, leading to a contraction in volatility and a possible setup for bulls to re-enter and manage risk.

At present, this selloff does not indicate a market for the bulls to give up on; it reflects an organized decline where some stocks are declining while others receive bids. This scenario is not characteristic of the beginning of a bear market; rather, it indicates a mid-year rebalancing, suggesting the bull market may continue in the following months. However, in the meantime, the market is showing mixed signals, and we require more time to determine a clear direction.

Today, I advise against selling the rally if all three indexes (RTY, NQ, and ES) are rallying in sync. This could be a momentum bounce that exceeds expectations. If the market starts to show divergence, then shorting the weakest index would be preferred. Short-term momentum currently favors the downside, so targeting the weakest tape (such as NQ on Friday) would be the strategy for today.

The key is to trade conservatively, understand the setups you are looking for, and avoid entering the day without a plan as the market is currently hunting for weak-handed positions.

Cheers, DELI