The “B” wave conveniently ended Friday at the trend-line and the 61.8% venerable Fibonacci confluence. With the price just barely touching the underside of the trend line that has been in place since last October, the “C” wave should get underway shortly using basic principles of technical analysis. Should prices reclaim and hold above the broken trend-line that would negate the A-B-C pattern in this time-frame, even amidst the ever-increasing macro risks coalescing into disruptions in supply chains, earnings growth, and the ongoing rotation away from the “pandemic stocks.”
The Fed has indicated they will taper the $120 billion (monthly) injection before Christmas, which will likely cause a contraction in liquidity by all intents and purposes. This will set up the opportunity for the Fed to reverse course and potentially re-initiate quantitative easing (QE) 2.0, and we see stocks breaking out to new all-time highs again. While the latter scenario is pure speculation, it seems like the most favorable outcome when considering the alternative.
Options alerts data suggests that options traders were aggressively buying into October and November puts, with significant six-figure orders coming in above the ask. This could perhaps be a hedge or an outright short on the SPDR S&P 500 (NYSE:SPY). Options traders speculate that a price pullback could come to fruition after the price stalled at the 61.8% Fibonacci and trend line confluence.
Since at least 2017, SPY has historically underperformed in October. And as Mark Twain so eloquently said, “While history doesn’t repeat itself, it does often rhyme.” From a macro and historical perspective seasonality, could be a headwind in itself going into the consequential month of October. Here’s the visual:
We expect the secular bull market to continue in the S&P 500 despite approaching a challenging time historically for the indices. Heading into October, an “A-B-C” pattern coming to fruition would place the “C-wave” near the elusive 200-day moving average setting up an actual test for the market.
The Roku Inc (NASDAQ:ROKU) chart below shows an unconfirmed double top with a neckline between the 275-300 range. The premise of technical analysis basics tell us that the pattern isn’t a confirmed double top until the price closes below the lowest level in the pattern. The lowest level in this screenshot is subjective as the price overshoots would be assigned a lower weight than the levels with 3 or more touches. If the price closes below the 275 level, that would significantly increase the odds of testing last September lows near the $150 level.
The 26-day moving average had proven to be formidable resistance and support for ROKU all year and was no exception on Thursday when we got 330 puts for $830 EA on Thursday. And by Friday, we were able to lock these in at $1,380.
ROKU has been in free fall since “double topping” in late July, now down -34.41% from the 52-week high and trading -13.94% below its respective 50-day moving average. It has become one of our most productive trades, both long and short, as the stock has proven to be synchronous with technical analysis parameters. Check out my two favorite tweets from Twitter Inc (NYSE:TWTR) this past week.
Meanwhile, Apple Inc’s (NASDAQ:AAPL) stock price continues to be under pressure as the stock price was unable to reclaim the 50-day moving average. The Nasdaq and S&P 500 could re-test the 200-day moving average while forming a bear flag in the process. A close back above the 50-day moving average would negate a test of the 200-day moving average in the near term. The article written last week regarding key levels in Apple is unfolding and becoming even more relevant now with risks increasing of a 200 MA re-test.
This unabridged version of this article was originally featured on http://www.daytradersjournal.news/