ATM Trading Club Newsletter

Tuesday, May 21, 2024

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Market Analysis: Navigating Marubozu Candles and VIX Dynamics

Today's trading session concluded with a Marubozu candle, signaling a bullish continuation in market sentiment. However, amidst this bullish outlook, we remain cognizant of several key factors influencing market dynamics.

The VIX, often regarded as the market's "fear gauge," has exhibited sustained low levels. While this may coincide with the SPX's upward trajectory, it's essential to recognize the potential for market pullbacks triggered by sudden spikes in the VIX.

As investors, we must remain vigilant and employ prudent risk management strategies to navigate potential market retracements driven by VIX fluctuations.

Stay informed, stay disciplined, and happy trading!

The ATM Trading Club Team

Market Analysis Continues: Strength in Indicators Persists

The market continues to exhibit robust indicators, with the ChiOsc maintaining accumulation levels and the Bollinger Bands steadily rising, driving price action upwards. A notable target is the R2 pivot at 5394.79, reflecting strong potential for price movement.

On the daily chart, the MACD displays unwavering momentum, complemented by the ADX signaling continued buyer control. Amidst this backdrop, there has been no discernible weakness in price action.

As we observe these bullish signals, it's imperative to remain vigilant and capitalize on potential opportunities presented by this market momentum.

A triple top formation is becoming increasingly possible as we once again close near the top of the range. This presents a challenging scenario for traders, as we must carefully assess whether the market will fail to break out from these levels or if a breakout is imminent.

In monitoring the 5-minute timeframe, it's crucial to watch for clues indicating whether a breakout or failure is imminent. Key factors to consider include:

- Expansion of Bollinger Bands: Look for continued expansion of the Bollinger Bands to the upside, suggesting potential upward momentum.

- Accumulation on the ChiOsc: Monitor the Chaikin Oscillator (ChiOsc) for signs of accumulation, indicating increasing buying pressure.

- MACD Strength: Pay attention to the MACD histogram for signs of strength and momentum. An increase in strength suggests potential bullish movement.

By closely observing these indicators on the 5-minute chart, traders can gain valuable insights into the market's near-term direction and make informed trading decisions.

On Wednesday, the potential play for a breakout scenario involves observing the market dynamics following an opening gap down. The focus would be on testing the 20-day moving average (MA) on the Bollinger Bands, currently positioned at 5316. Ideally, targeting a level around 5315 offers better premium and increases the likelihood of a continuation of the upward move. This level represents a significant threshold, as it marks a break and re-test of the 5315 resistance encountered on Tuesday's trading session.

Support Levels for Wednesday, May 22, 2024:

1. Support Level #1: 5315

2. Support Level #2: 5312

These support levels can serve as key reference points for traders to monitor during Wednesday's trading session, providing insight into potential areas of price action and decision-making.

0dte Options to consider for Wednesday……

Put Vertical to Consider for Wednesday

For Wednesday, May 22, 2024, consider the following 0DTE options strategy:

If a pullback to the 5310 to 5315 range is achieved and these support levels hold, consider a put credit spread (PCS) as a bullish play:

- Aggressive Play: Sell 5305 put / Buy 5300 put

- Conservative Play: Sell 5300 put / Buy 5292 put

These options strategies allow traders to capitalize on potential pullbacks and buy the bounce scenario while managing risk with defined risk profiles. Adjust strike prices and entry points based on market conditions and risk tolerance.

Call Vertical to Consider for Wednesday

If there's a failure to surpass 5335.20 and a struggle to break above 5330, it could present a shorting opportunity. In this scenario, consider placing a call vertical spread:

• Aggressive Play: Sell 5340 call / Buy 5345 call

• Conservative Play: Sell 5345 call / Buy 5350 call

Additionally, if there's early divergence on the MACD and a failure for the ChiOsc to accumulate, it could also favor a call vertical play. Adjust strike prices and entry points based on market conditions and risk tolerance.

Market Alert: Important Events to Consider for Wednesday

Be aware that Wednesday presents significant market-moving events that may impact your trades. At 1:00 PM, there will be a 20-year bond auction, followed by the release of the minutes at 2:00 PM.

These events have the potential to induce volatility and influence market price action. Additionally, existing home sales data will be released in the morning, further contributing to potential market movements.

Exercise caution and remain vigilant when placing trades, considering the potential impact of these events on your trading positions.

Stay informed and trade wisely.

Educational Section: Understanding Marubozu Candle

A Marubozu candlestick indicates strong momentum in the market, signaling that the price action is likely to continue moving in the same direction. The significance of the Marubozu formation lies in its one-sided nature, showing no signs of reversal.

- Bullish Marubozu: This pattern appears when the opening price is the lowest of the session and the closing price is the highest, suggesting strong buying interest.

- Bearish Marubozu: Conversely, a bearish Marubozu occurs when the opening price is the highest and the closing price is the lowest, indicating strong selling pressure.

Significance and Success Rate

- Market Sentiment: The Marubozu candlestick signals that the market is currently one-sided, either dominated by buyers (bullish) or sellers (bearish).

- Continuation Indicator: It suggests that the current price trend is likely to continue.

- Success Rate: The success rate of Marubozu patterns is considered to be 65-70% when used with other technical indicators and price action analysis.

Traders often rely on Marubozu patterns in conjunction with additional technical analysis to improve accuracy and confirm market trends.

Overall, Wednesday's trading session requires a cautious approach due to significant market-moving events such as the 20-year bond auction at 1:00 PM and the release of minutes at 2:00 PM. Additionally, existing home sales data in the morning adds to the potential volatility.

Given these factors, it's essential to stay informed, maintain discipline, and prioritize risk management in your trading activities. Keep a watchful eye on support and resistance levels and be prepared to adapt your strategies accordingly.

Exercise caution and trade prudently.