What Technical Charts Suggest About Market Structure

Technical Analysis & Charting Review – Recent Market Activity

Key Concepts:

• Technical Analysis: Method of evaluating investments by analyzing past market data, primarily price and volume.
• Charting Patterns: Recognizable formations on price charts that suggest potential future price movements (e.g., topping patterns, basing patterns).
• Puts & Shorts: Investment strategies profiting from a decline in asset price. Puts are options contracts, while shorting involves borrowing and selling an asset with the expectation of buying it back at a lower price.
• Gap Analysis: Identifying price gaps in charts as potential support or resistance levels.
• Breakout/Breakdown: Price movement exceeding established resistance or support levels, respectively.
• ETF: Exchange Traded Fund – a type of investment fund traded on stock exchanges.
• Distribution Top: A chart pattern indicating a potential reversal from an uptrend to a downtrend.
• Measured Move: A technique used to estimate the potential extent of a price move based on the size of a preceding pattern.

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I. Trading Anecdote & Risk Management – The CRDO Example

The speaker began with a cautionary tale regarding a recent trade involving Credo (CRDO). He initially identified a favorable chart pattern and entered both put options (with a June 125 strike price) and a short position, effectively doubling down. This proved to be a mistake when CRDO announced unexpectedly positive sales projections after market close, causing a significant price surge.

Key Mistakes Highlighted:

1. Overexposure: Combining puts and a short position on the same asset increased risk unnecessarily. He advises choosing one or the other.
2. Panic Selling: Reacting emotionally to the price increase and “buying to cover” the short position at a disadvantageous price.

He emphasized the importance of adhering to established trading rules, specifically referencing “Slope of Hope” trading rule #2: “Don’t trade after hours.” He explained that after-hours trading is characterized by low volume and heightened emotional volatility. Despite the initial loss on the short position, he maintains the put options, believing the chart still presents a potential opportunity, and even added to his position. He noted that inaction – waiting for the regular trading day – would have resulted in a less severe loss.

II. Broad Market Overview – ES, DIA & Jobs Report Anticipation

The speaker then transitioned to a review of broader market indices. The S&P 500 (ES) is showing a series of lower highs, suggesting potential weakening after a strong rally on Friday. The Dow Jones Industrial Average (DIA) achieved a new lifetime high but appears “tired.”

He noted that the administration is preemptively framing expectations for tomorrow’s jobs report, suggesting potential adjustments due to reported deportations. This highlights the potential for market manipulation or unexpected data influencing trading decisions.

III. Sector & Stock Specific Analysis

A. Precious Metals (GLD, GDX, GDXJ): Silver experienced a relatively calm trading day, and coin dealers are reportedly reducing their purchases, potentially indicating a peak in the recent precious metals rally. Gold (GLD) is down slightly, and the speaker anticipates a potential top. The mining ETFs, GDX and GDXJ, present a key test at existing price gaps, which act as resistance levels.

B. Cryptocurrency (Bitcoin, Ethereum): Both Bitcoin and Ethereum are weakening. Bitcoin is trading below 70,000, failing to reach the 81,000 resistance level. The speaker offered a contrarian prediction, suggesting Bitcoin could fall to 25,000 in the next year or two, based on a “measured move” analysis. Ethereum is down 5.52% and approaching Friday’s price action levels.

C. Sector Strength – Materials (XLB) & Energy (XLE): Materials (XLB) and Energy (XLE) ETFs continue to perform strongly, with XLB reaching a lifetime high. While bullish, the speaker cautioned that these sectors are overextended.

D. Weakness in Software & SAS Stocks (Monday, Workday): Software and SaaS stocks are experiencing significant declines, with Monday reaching a lifetime low. Workday is down in sympathy. These charts exhibit “massive distribution tops,” indicating potential further declines.

E. Individual Stock Analysis:

• Rubric: The speaker used Rubric as an example of a stock exhibiting a temporary “out of the blue pop” that may not signal a fundamental change in trend.
• Intel (INTC): The speaker remains short Intel, with a tight stop-loss order placed near a recent price gap. The gap is holding as resistance, and the stock is down almost 7%.
• Palanteer (PLTR): Reversing from a distribution top, down 3%.
• Chipotle (CMG): Down about 2-3%, weakening after sealing a previous gap.
• Micron (MU): Down nicely, over 3%, failing to recover from Friday’s rally.
• Super Group (SGHC): Down almost 3%, exhibiting a pattern identified weeks ago.
• SanDisk (SNDK) & WDC, STX: Showing weakness, down significantly.
• Alphabet (GOOGL): Down 1.3%, with puts held by the speaker.

IV. Key Technical Observations & Future Watchlist

The speaker emphasized the importance of monitoring the semiconductor sector, noting that a breakdown in the current channel could signal broader market weakness. The NASDAQ (ENQ) has been “treading water” for months, lacking significant upward momentum.

He highlighted Robinhood (HOOD) as a potential trading opportunity after the close, contingent on a rally towards a gap fill. He also mentioned watching for potential trades in WDC, STX, and other weakening stocks.

Data Point: The speaker mentioned selling most of his silver bullion at approximately $113 per ounce in the past.

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Conclusion:

The speaker presented a nuanced view of the current market, acknowledging recent rallies while highlighting emerging signs of weakness. He stressed the importance of disciplined risk management, adherence to trading rules, and avoiding emotional reactions to market fluctuations. He identified key levels and patterns to watch across various sectors and individual stocks, providing actionable insights for traders. The overall tone was cautious optimism, emphasizing the need for careful observation and strategic decision-making.