The Bottom Line:
- Analyzing the recent selling pressure in the S&P 500 (SPY) and the importance of maintaining above the weekly no-change level
- Examining the relative weakness in the Nasdaq 100 (QQQ) and the potential for daily oversold conditions to present buying opportunities
- Discussing the Dow Jones Industrial Average (DIA) and the trade zone that has been entered, with a focus on hourly oversold bounces
- Highlighting the key support level for the Russell 2000 (IWM) and the potential for a test of the recent lows
- Emphasizing the importance of considering both extension and location when identifying potential trade setups
Maintaining Above the Weekly No-Change Level in the S&P 500
Assessing the Current Market Conditions
As of right now, there’s a brief break under the weekly no-change level in the S&P 500, but not yet that much follow-through on it. If you zoom out a little bit and just check out the volume profile, you’ll see that there’s a little bit of a higher volume node over here and then not really much more volume traded until the 3202.43 structure. This setup has already popped out of the stop, but it did give an opportunity to take profit if you used a hypothetical trade zone.
Comparing Recent Retracements
Recently, the character of the market has shifted a little bit, even though comparing these retracements, it’s very comparable to the previous retracement from a percentage perspective. However, we have already exceeded that slightly, with this retracement being around 6 points and change, while the previous one was almost 6 points. It’s also a little bit different in that the last time we had this kind of a retracement, it was off a really big move, and the retracement off of the last weekly low was much lower.
Key Levels to Watch
The best-case scenario for the buyers from here on out is to maintain over the weekly no-change level, which is where the weekly breakout occurred at 3307. As long as they can maintain over 3307, buyers are being constructive relative to the structure here, and they will be on defense, paying attention to the little bit of daily supply overhead. If these buyers cannot overcome the breakdown level of 3745, then the sellers are going to remain absolutely confident on the daily timeframe. Despite the fact that things don’t look so great as of recently, in the bigger picture, there’s really not yet that much damage that’s occurred.
Examining the Relative Weakness and Potential Oversold Conditions in the Nasdaq 100
Relative Weakness in the Nasdaq 100
The Nasdaq 100 (QQQ) is definitely showing some relative weakness compared to other indices. It’s notable that both of the recent bounces have failed to even test the daily no-change level. If the buyers cannot get back to 454.15, that would be the best-case scenario for the sellers. The buying is weak on the daily timeframe, as the buyers today had two objectives: to get back over the daily breakdown level and to fill the gap, but they failed at both.
Waiting for Oversold Conditions
Personally, I’m still waiting for daily oversold conditions to look for aggressive buys in the Nasdaq 100. The last time we saw a similar retracement, daily oversold conditions were already present. Because of the recent 5-6 day balance, which cooled off the daily RSI, it’s looking like we probably won’t get extended into the high-volume area around 438.50. I’m letting this extension be my guide and waiting for the right location, as I always want both the extension and the location to align.
Key Levels and Potential Setup
A trade zone was shared that aligns with what I’m talking about – it was designed for there to be oversold conditions. However, I wouldn’t enter the trade just yet, as I’m waiting for the daily timeframe to become oversold. This trade zone is roughly the area that I’m interested in, and if you’re recreating this at home, you can adjust it to align with where the daily would get extended.
The key supply overhead for the Nasdaq 100 is the same from July 24th to August 1st. The buyers need to get over 454.15 next week as the first step to regain their footing. If they cannot get back over this level, then sellers remain in complete control, and we’re looking down at the 222-412 structure, where there’s a lot more volume traded.
Navigating the Trade Zone and Hourly Oversold Bounces in the Dow Jones Industrial Average
Hourly Oversold Bounces Still Viable in the Dow
The Dow has entered our trade zone as well. I’m more okay with playing hourly oversold bounces in this index, although it didn’t actually get extended on the hourly today. This setup is still fine for hourly oversold bounces because there’s not really overhead supply, and it’s still kind of balancing within the local supply. If there was a clear breakdown with supply overhead, I would like that setup less.
Key Levels and Trade Zone
This trade zone for the Dow is very reasonable. You probably don’t want to be adding to it unless you get hourly extended again, and you just want to be waiting for these locations where there was more value established in the past, which is roughly around 32,391 and 32,389. Remember, extension into location is key. Once you have the extension, then you’re looking for the location, or vice versa.
Buyers Need to Find Acceptance Above Key Level
There’s space for a daily lower high to be set under 34,121 in the Dow, and the daily no-change level should actually be at 32,980.8 now that we just broke down to this lower low. These buyers have to find acceptance next week over 32,980.8, which is a pretty good reference to see whether or not they’re going to come back into all of this. That’s why this trade zone is covering a decent amount of where this volume picks back up within this area. As long as they don’t find acceptance within here, the buyers should try to make their way back over here and then try for something like that, just battling these levels right now.
Identifying the Key Support Level and Potential Test of Recent Lows for the Russell 2000
Testing the Key Support Level
For the Russell 2000 (IWM), it’s currently testing a crucial spot, which is where I’m most interested in looking for potential plays. As I mentioned last week and throughout the midweek market updates, if we saw a higher high that didn’t see follow-through, then we should look for a test of these recent lows.
Potential Scenarios and Reactions
If the Russell 2000 breaks down below this key support level, it could trigger a more significant sell-off in the index. However, if buyers step in and defend this level, it could provide a solid foundation for a potential bounce or reversal. Traders should keep a close eye on how the price reacts around this key support zone.
Monitoring Market Sentiment and Volume
In addition to watching the price action around the key support level, it’s essential to monitor overall market sentiment and trading volume. If there’s a breakdown with high volume, it could indicate a more bearish scenario. On the other hand, if the support level holds and volume picks up on a potential bounce, it could signal a shift in market sentiment and a possible bullish reversal.
Considering Extension and Location When Identifying Potential Trade Setups
The Importance of Extension and Location
When identifying potential trade setups, it’s crucial to consider both the extension and location of the price action. Extension refers to how far the price has moved from a previous level of support or resistance, while location refers to where the price is in relation to key levels or structures on the chart. By combining these two factors, traders can increase the probability of finding high-quality trade setups.
Using Volume Profile to Identify Key Levels
Volume profile is a valuable tool for identifying key levels of support and resistance on a chart. By analyzing the volume traded at different price levels, traders can determine where the most significant buying and selling pressure is likely to occur. When the price approaches these high-volume nodes, it can often provide a good location for potential trade setups, especially if there is also a significant extension from previous levels.
Adapting to Changing Market Conditions
Market conditions are constantly changing, and what worked well in the past may not always be effective in the present. Traders must be willing to adapt their strategies and adjust their approach based on the current market environment. For example, during a strong trending market, traders may focus more on extension and be willing to enter trades further from key levels. However, in a choppy or range-bound market, traders may place greater emphasis on location and wait for the price to reach high-volume nodes or other significant levels before entering a trade.
