As I was going through my analysis tonight, I ran into a problem. Typically, when a resistance or support level breaks, it occurs as validation of the move that was already in place. If my analysis on uptrend/downtrend levels is correct, that's where the problem lies. On October 19th, SPY broke down below its uptrend from October 2022 lows, a level that had already shown significance between September 27th and October 2nd. I don't find many traders within my circles looking at that trend line, which I find interesting. I also find it suspicious that we clearly broke below and held for multiple weeks, only to rocket back up and recover on November 3rd. Typically a move like this is contained to 1 or 2 days, and the result is akin to pushing a beachball below the water's surface and letting go. In fact, you can see the effect from the break of the lower trend line on October 26th and 27th, and the rally that we just experienced. Just as all technicals pointed bearish, the market moved in the complete opposite reaction: a pretty normal occurrence. What's not normal is how extended we are, how many resistance levels we've sliced through, and the fact that in 5 trading days, we went from starting a downtrend to resuming an uptrend 20 points higher. It's all a little laughable and goes to show why it's so important to be prepared for anything you can.
I'm very curious if the uptrend holds over the days ahead. In a normal trading environment, a healthy pullback from here would retrace the recent gaps and establish support at the first main resistance broken during this rally. The problem is that doing so would put us back around 422 or the 200dma, which would put us back into downtrend territory. In order to get down that far, the bullish trend line must break first.
Similar to SPY, QQQ broke out of its falling wedge right after breaking to the downside on October 26th. QQQ has been easier for me to trade the last couple of weeks, and it still seems to be. The first pullback from a technical standpoint would be to the upper part of the wedge, but that leaves so many untested areas below. I have been looking for a safe area to enter on the long side in order to capitalize on some of the hype, and that first retest looks like an option if buyers step up and defend it. If price falls back into that wedge, filling some of the recent gaps becomes that much more probable.
Plan for tomorrow: If QQQ holds the breakout over 373.74, the next major resistance I see is 380, then 382. If I do get an opportunity to play this breakout, trades will be limited to day trades until a more substantial pullback materializes. If not, 380 becomes the next area I try to short. If we fail to hold 373.74 on an intra-day pullback, then a retest of the upper part of the wedge becomes the next area I try to enter long. Additionally, any move on SPY or QQQ back into their recent break out patterns bring my SPXU and SQQQ positions back into play.
Good luck tomorrow. Hopefully everyone is navigating this market well!