Break of the two-weeks lows, panic before Powell? Wednesday's Plan
Defense always wins, but too much defense get you nowhere
Yesterday I wrote, “Since prices have been accepted to close below the Weekly Pivot, I’m not interested in looking for longs.” Today, we closed -0.9%, in the red. At no time were bulls in control.
Let’s go through what happened today and how can we adapt for tomorrow’s trading day.
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When we discussed yesterday, I mentioned: “My favorite scenario for the rest of the week is to keep grinding down below the current daily range (11,528) and then a violent move to 12,000+. We also need to remember that the tail’s risk is real; below 11,528, there are not many fresh supports.” Well, here we are. $NQ closed today at 11,522, slightly below the critical 11,528 level formed 2.5 weeks ago. Why does it matter? Because so far, we have always bounced back from that level during the NY session. Until today. Usually, a level will resist one or two times, but the third time can bear more risks. So, why am I happy that we closed below that 11,528 level?
Before answering that question, let’s go through today’s action.
From 6:00 pm to 3:45 am, we had a clean succession of green candles, taking $NQ from 11,611 to 11,705, with clear impulsions at 8:40 pm and 10:15 pm. Then, we had (again) an inverse V-shape pattern on the 5-minute chart, marking the high of the day. What picked my interest here?
A few things:
$NQ went above the Monda VWAP close during the first hour of the London opening;
$NQ printed an inversed V-shape, breaking the weekly VWAP and retesting it before continuing to print lower lows for the rest of the day;
We could not reach the AVWAP from November 10, 2022, which hasn’t happened much since the previous leg up on the HTF.
We had the same behavior yesterday, where we went up overnight until the first part of the London session to reverse and print a new LoD.
On November 17, 2022, and November 22, 2022, we tagged that 11,528 level during the first hour of the NY open. Both times, we had a strong 300+ pts movement. Today, we broke that level, and bulls were not here anymore. I invite you to pull up your chart and look at the hourly $NQ on the 17th and 22nd of November to see how prices reacted. Today behave very differently.
An early sign was that, just like yesterday, prices could not show any strength against VWAP. The only time prices went above it was during the excess printed at 3:45 am. Then, VWAP acted as a resistance two times before tagging the Monday OVN low (which showed no support) and later during the day at 11,465.
If we zoom in on that HoD, what can we see? On the 5-min chart, the 3:50 am candlestick is engulfing (if you look at the bodies only). Then, the 4:00 am and 4:05 am candlesticks were strong signals for short. Of course, this is hindsight analysis, so easy to tell. However, at 4:00 am, I’m sleeping. I’m trying to explain my thinking process to read the market when I wake up. You have those clues if you start your trading day at 7 am, and it’s your job to collect them and act accordingly. To confirm these signals, we had the clean retest of the VWAP test at 11,681 at 5:35 am. Until 8:05 am, bounces were smaller and smaller until we had another leg down initiated by the bear candle from 8:10 am. What is difficult is to keep analyzing clues as they come and let bias aside. Even though it I said I wanted to do only shorts today, my mind was looking for reasons to get long. I struggled with executions and wasn’t able to pull the trigger. I ended the day with no trade, which is quite rate to be honest. It’s definitely a point of improvement for me going into 2023.
Defense always wins, but too much defenses get you nowhere.
The NY session has been unidirectional. Bears won an easy battle. We had a rather low-vol 30min OR (c. 60 pts), which was expected with Powell speaking tomorrow. Notice how clean the moves have been after the first 30min. We tagged the mid 30min OR before going back to the low 30min OR, then went at the high 30min OR before the final leg down of the day. Since I stopped taking trades the 30min prior the NY open and the next 30 min, my trading results improved drastically. If you’re struggling with consistency, I would advise you to try this for yourself over a few weeks and see if it impacts positively your results.
After that 11:20 am leg down, the market has been oscillating in a tight range, and the 11,561 LVN has been rejected successfuly two times. We built a lot of volume around 11,528 and we closed quite extended from the weekly VWAP.
So, why am I happy that we closed below 11,528?
Because if the market was really weak, we had plenty of time to go much lower than 11,465. We could easily have gone 1-2% below that key level. But we didn’t. I’m also not too much concerned if the market keep bleeding overnight. We’re sitting at the low of the range, and the news is coming tomorrow.
All eyes are on Powell tomorrow!!! Expect some fireworks in the second part of the week. It’s the third time you have seen this news for the week, so you have no excuses if you get caught with a large movement tomorrow.
For volatile days like tomorrow, I usually remove most of my intermediary levels. The goal is to catch a good entry and let it ride. I don’t swing, but if I would, I’d look for something like below IF and only IF 11,528 would be lost and then quickly recaptured during the news. Other than that, I have my weekly pivot in green and levels in purple.
A little exercise for you my friends. Open a spreadsheet and note the $NQ returns every day:
before Powell spoke;
the day Powell spoke;
the day after Powell spoke.
It will take you 2-3 hours, and it will be most likely a manual work, but it’s worth it, and you’ll be proud of you at the end.
Thank you.
- Retail
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