“Escalator up, elevator down” is how the old saying goes about markets .. And we have definitely experienced the elevator down part over last couple days .. The overall flow has been a bit of a pain in the rear end as well through this .. We’d much rather see one-sided put sweeper activity, where bears grab the ball & run with it .. Besides the downside momentum created of that type of activity, call buying would stick out like sore thumb when it finally arrived .. What we have here instead is sloppy order flow where buyers step in & do some nibbling in select names from time to time .. This type of flow is not bad for building a solid watch list but it becomes a bit more difficult to get a handle on when real buyers are attempting to nail out a potential bottom .. Regardless, the market doesn’t give a rat’s ass what type of flow we prefer, so it is what it is .. Late Tuesday afternoon, it appeared we finally are starting to see Sweepers position for a squeeze.. VXX PUT SWEEPER activity & TQQQ call buying are 2 reliable signals & both showed up into the closing bell today .. What we should see follow in the next day or so are Sweepers getting aggressive in individual names ..
SENTIMENT experienced another nice cleansing on Tuesday .. We came into today’s session already set up for a squeeze off any additional weakness but buyers just couldn’t string much together to help light the match .. Now we have the addition of a potential gamma squeeze to add a bit more fuel to the fire, so when it does show up there should be some decent juice behind the move .. What happens if not much of a squeeze is generated off short term sentiment? That’s where we rely on our intermediate-term (positioning) signals to light up green .. That will allow us to add to names off any weakness & build a few positions with a little tome .. The problem there is we are coming from the complete opposite sentiment extreme prior to this pullback, so we still have some work to do ..
PLAYBOOK The current gameplan is to take a tactical approach & remain quick .. There is no reason to change that & start to get aggressive in any way .. The unknown of this virus is a tricky thing now that it has started to spread outside of China .. Only time will tell & entering this correction with HEDGEFUNDS, CTAs, MONEY MANAGERS all at max risk long does not help the matter .. There’s a good amount of potential supply out there .. We do have some signs of a potential sentiment squeeze at play but nothing more than that just yet .. So to sum it all up, the playbook stays the same .. take it day by day, nice & easy while at the same time being ready for when Sweepers change their tune by getting aggressive in a big way..
Monday’s order flow wasn’t as bad as you might expect on a down +1000 pt selloff .. ETFs saw the bulk of put sweeper action as bull Sweepers did some shopping in selective names .. Sweeper activity wasn’t really supportive of a move in either direction most of Mondays session as the flow was mixed overall throughout the day .. Although, as just mentioned, there was some decent order flow in select spots .. The flow didn’t provide too many clues regarding any possible smart money rotation that may take place over the short or intermediate term .. It’s also only the first real day of selling so we should be thankful that we get a few names to eye for some possible accumulation.
Sentiment got a nice washout Monday .. We head into Tuesday’s session coming off a fresh bullish signal from our “TRADER SENTIMENT” indicator .. Several other short term squeeze indicators (see private TWTR or Market also signal for a high probability snap back rally .. SPX gamma exposure flipped from posit territory all the way to a -1b reading .. A reading of negative $1b also puts us on alert for a squeeze .. Most intermediate term indicators softened a bit as well Monday but most have some further work to do before getting into extreme territory .. The FEAR/GREED model is one of a few IT readings closer to a bullish sig
GAMEPLAN Our plan coming into the week anticipated squeeze signals off any legit weakness, and that’s what we got .. Keep an eye on any signs of sweeper momentum off the open Tuesday .. If we do get the luxury for some further weakness Tuesday, that’s where we need to try & find something to get our hands on for that brisk yet powerful snap back play .
Commentary courtesy of TradeAlert
Overall flow remained sloppy while the ndices finally cracked on Friday .. It obviously was only a matter of when at this point & we started to see a few signs of some sort of a breather starting to manifest .. Several daily upside niner exhaustion signals started to pop up last week, including on the indices & several of the hot momo names were basically in parabolic mode .. Those were a couple of the most obvious signs .. But a “breather” and/or a “correction” are 2 very different things .. That’s where many retail traders get themselves in a lot of trouble, leaning short into a breather & looking for a major downside move .. While an inevitable pause was kind of anticipated, what happens next is a completely different story .. There are quite a few scenarios that can play out from here & we have to try to be ready for all of them .. If money decides to rotate in a major way, the odds of a solid drawdown in the indices are slim .. While pockets of this market were scorched to the upside, a nice chunk of of names out there barely participated in the upside .. Another potential scenario, some further downside in these red-hot low vol/low rates plays & they just step in to buy the dip .. We’ll discuss all of these potential outcomes & the proper playbook for each of em but the most important thing is that we need to be able to forgot about our feelings & keep an open mind .. We need to be able to think & see clearly amidst all the noise out there .. This whole Coronavirus debacle will play a major part in things but the likelihood is that market+flow+sentiment will be sending us signals long before things become obvious .. We head into next week with a lot better setup off short-term Sentiment, that’s a plus .. Gamma exposure at an interesting spot as well being just barely positive .. As mentioned going into Friday, the reins on the indices have been loosed up & we lost that BTFD force of gamma, price action could get a bit frisky out there next week.