April 19th, 2023

Three Reasons The Market Will Wake Up This Week

Trading was once again a snooze fest as the majority of the daily move was completed within the first hour.  Here’s a 5-min chart of how yesterday traded, although you can see that it did have a slight bullish bias in the afternoon.

The Russell 2000 (IWM) underperformed the other indices, but most of that is coming from the regional banks that are struggling to get out of the ongoing credit crunch.

The Regional Bank ETF (KRE) has struggled to return to its normal price after the initial banking crisis that came out in early March.  You can see in KRE’s daily chart that it found some footing around $42, but has been unable to overcome its issues.  I don’t see this picture improving with another rate hike in early May.

So, overall the market this week has been uneventful, but that is likely to change today.

So, what three things might jolt this market from its slumber?

The Fed is meeting today and we’ll get to hear from some of their members in the afternoon.

Jobless claims are due out tomorrow.

Lastly, we have earnings from some of the heavy tech players like Netflix (NFLX) and Tesla (TSLA).

My concern is that investors are being lulled into a sense of complacency. The Volatility Index (VIX), which typically moves inversely to the broader market, just made a new 52-week low.

Option sellers are going to find it more difficult to find premiums if volatility keeps going lower. On the other hand, if the VIX goes up, that means the S&P 500 is most likely going to head lower.

Then again, maybe we’re going to continue being in a sleepy market. At the time of this writing, Netflix (NFLX) is only trading -1.84% lower in after-hours trading. That’s not much of an initial reaction to earnings.

The next level to watch overall in the S&P 500 is 4200. Here’s a chart of the S&P 500 ETF,

A 20% gain from the October low is sitting at 420, and a cross above that level would mean we’re technically in a bull market. Now, that last time we were near 420, the market sold off, so we’ll see if earnings or the Fed can give us news to break out higher than 420.

DraftKings (DKNG) broke higher, out of a wedge (what, I like the wedge pattern) on higher volume. It closed up over 7%. The stock has been hovering around the 50-day moving average and finally broke free as more states are lifting bans on online sports betting.

I don’t like trading right after a 7% gain in a day, but a break out of the wedge means there’s room for this to keep going higher. I would love to see a pullback and enter on the dip. My stop loss would be around $17.55 and my profit target is around $23.50.

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation. 


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