To The Moon

U.S. equities suffered another week of significant losses, the sustained selling pressure pushed multiple major indices into formal correction territory, defined as a 10% decline from recent record highs.

$Dow Jones(.DJI)$ closed exactly 10% below its peak. $NASDAQ(.IXIC)$ and $NASDAQ 100(NDX)$ are now down 12.6% and 11.4% respectively. The $S&P 500(.SPX)$ ended the week 8.8% below its own record close.

The Federal Reserve reinforced the bearish backdrop by holding rates at 3.50% to 3.75% during its March meeting while raising its inflation forecast to 2.7%. Borrowing costs are staying elevated, and the market is finally pricing that in.

Geopolitical turmoil drove the risk-off move. Tensions escalated sharply on Friday following reported strikes on Iranian steel and power infrastructure and the effective closure of the Strait of Hormuz. Crude oil futures $WTI Crude Oil - main 2605(CLmain)$ reversed early week losses to trade back above $100.

Gold $Gold - main 2606(GCmain)$ , historically the default safe haven is stable and recovered early week losses, the bearish reversal shows the worst slump since 2008. Bitcoin held between $65K and $72K, touching again our annual support level.

Last Wednesday we studied in a special edition about risk management, how difficult can the market be when the VIX is above 20, today the volatility index closed at 31, and the indices breached key support levels.

The publication mentioned presented examples of trailing stops for long positions, today I want to bring an example for short positions using the levels that I posted in the premium chat this morning. The levels were posted for all the magnificent seven, other major stocks, and of course, the SPX and key ETFs like QQQ.

Managing Levels for Short Positions:

The concept of “central level” refers for the price zone where a security is bullish above it, and bearish below it. The Central Monthly Level (CML) has proven to be a essential risk on/risk off threshold as we studied in previous publications. No good things happen below the CML. Needless to say, most of our equities studied lost their CML, just $Occidental(OXY)$ and $iPath Series B S&P 500 VIX Short-Term Futures ETN(VXX)$ are above it. There are monthly support and resistance levels that are modeled for each month.

Then we have the weekly levels and the Central Weekly Level (CWL), they work for swings, and when the $Cboe Volatility Index(VIX)$ is high, the rapid moves among them are constant, as we have seen during eight weeks already.

Given the wide space among monthly and weekly levels, there are daily levels with intermediate layers that facilitate navigation or provide early reversal warnings.

Several securities were posted in the premium chat, QQQ was one of them and provides a real life example of trailing stops for shorts:

The price closed on Thursday at 573.8 (1), the CWL was 588.8 (next week’s updated below), in case of a reversal, waiting until 588 to turn bullish was a long shot, so it was worth knowing the CDL (2), and for today it was 577.3, that was much closer.

Bulls can stay safe out of any long below 577.3, so waiting is an approach. Bears can short the security given the high volatility index. in that case, shorting QQQ setting a stop above 577.3 was valid.

The price didn’t try to fill the gap at the opening, it continued the selloff, breaking below the weekly support of 571 (3), now flipped to resistance along with the monthly level of 573.6. When a level is lost and there is a short position, the stop can be moved above the new level lost (remember, not exactly at the same level, algos can touch them with precision as we have seen several times before.

The daily support of 569 was breached soon after the opening (4), then, at 1:15 PM approx., the daily support of 566 was breached (5), guess what, any stop loss could have been placed slightly above it. Last Wednesday we studied distances above or below a level.

The price closed close to the lows of the day, after approaching the extended bearish target of 561.5 analyzed in the Weekly Compass last week.

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