What These Chart Setups May Signal Now

Market Analysis & Trading Strategies – Weekly Review

Key Concepts:

• DIA (Diamonds): The Dow Jones Industrial Average, used as a benchmark for overall market health.
• IWM (Russell 2000): Represents small-cap stocks, often considered a gauge of economic strength.
• Edwards & Magee: A classic approach to technical analysis focusing on chart patterns.
• Gap Down/Up: A significant price movement that opens outside the previous day’s trading range.
• Bullish/Bearish: Terms describing optimistic (rising prices) and pessimistic (falling prices) market sentiment.
• Trend Line: A line drawn on a chart connecting a series of highs or lows, indicating the direction of a trend.
• Failed Breakout: When a price attempts to move beyond a resistance level but fails to sustain the move.
• Distribution Top: A chart pattern indicating a potential reversal from an uptrend to a downtrend.
• BITI/SBII: Exchange Traded Funds (ETFs) tracking Bitcoin, BITI being a long position and SBII an inverse (short) position.
• IEF/TLT/LQD: Bond ETFs representing different segments of the bond market (Treasuries, Long-Term Treasuries, Corporate Bonds).

I. Market Overview & Sentiment

The week was characterized by volatility, with a significant drop on Monday and Tuesday, followed by partial recovery before a decline on Friday. The speaker notes a mixed bag of results in his own trading, highlighting the challenges of short-term market timing. The primary focus for the coming week is the jobs report scheduled for Friday, which is expected to significantly influence market direction. Earnings season is largely concluded, with Nvidia’s report serving as a concluding event. Overall sentiment appears cautious, with a leaning towards bearish expectations.

II. DIA (Dow Jones Industrial Average) Analysis

The speaker has been accumulating put options on DIA (April, June, September, and January expirations, with a specific focus on April diamonds) anticipating a market downturn. The DIA has fallen below a key trend line, and the next critical level to watch is a support level representing the lowest point of the year, also coinciding with a price gap. Breaking this support would be a significant bearish signal. He attributes some of the downward pressure to the DAO ($50,000) level, but believes further catalysts are needed to accelerate the decline.

III. Small-Cap Performance (IWM)

The IWM (Russell 2000) has shown particular weakness, falling over 1%. The speaker emphasizes that bulls need to break above a resistance line and close the price gap to regain control, while bears need to crack the trend line. He notes that another day of trading like today (Friday) could lead to a decisive break below the trend line.

IV. Individual Stock Analysis – Winners & Losers

• Coreweave (CORW): The speaker describes the chart as “sloppy” and confirms a downtrend, despite previous attempts at recovery.
• SLM Corporation: Presented as a textbook example of a topping pattern, with a significant drop after breaking support. The speaker stresses the importance of not re-entering a pattern after it has been breached.
• Dell (DELL): A cautionary tale. Initially appearing to be breaking down, Dell reversed course after earnings, causing losses for the speaker. He reduced his position significantly to limit further losses, ultimately recovering some gains as the stock fell later. He emphasizes the risk of jumping into trades before a pattern is confirmed. "A pattern that's almost complete is not complete. It's not ready yet."
• Supergroup (SFG): Another “dud” where the pattern completed, fell, retraced, and then unexpectedly pushed higher, resulting in a losing trade.
• Axon (AXON): Exploded higher, piercing a key pattern. The speaker has initiated a small short position, believing the long-term vulnerability remains.
• Applied Digital (APLD): Demonstrates a successful breakdown, down over 8%.
• Infosys (INFY): Continues to decline, down 2.25%.
• CrowdStrike (CRWD): Also slipping, down 3.3%.
• Futu Holdings (FUTU): Pattern complete and moving in the desired direction (down), almost 3.12% decline.
• Quantum Computing (QUBT): Down almost 9%.
• CRDO (Oredo): A favorite short position, showing a promising breakdown, down 3.1%.

V. Cryptocurrency (Bitcoin)

The speaker initially exited his Bitcoin position but re-entered it after the conversation with the audience, as Bitcoin was down 2% at the time of the review. He also holds a short position in SBII (inverse Bitcoin ETF). He acknowledges the volatility in the crypto market, noting that temporary rallies don't necessarily alter the overall bearish trend. "You're going to get pops now and then, but it doesn't necessarily change anything."

VI. Bond Market Analysis

The speaker highlights a reversal in IEF (short-term Treasury ETF), indicating strengthening bonds and falling interest rates. This is corroborated by TLT (long-term Treasury ETF) and LQD (corporate bond ETF).

VII. Trading Methodology & Risk Management

The speaker employs a primarily technical analysis approach, relying on classic chart patterns (Edwards & Magee) and minimal indicators. He maintains a diversified portfolio with relatively small position sizes (3-4% maximum) to limit risk. He emphasizes the importance of cutting losses quickly when a trade’s rationale is invalidated. "If the rationale for a trade is violated then you get out of the trade cuz the rationale has been broken." He acknowledges that even with a disciplined approach, losses are inevitable.

VIII. Additional Observations

• Japan (EWJ): Shorted on a gap trade, with a stop-loss at 92.92.
• Canada: Strong performance, with a potential shooting star pattern forming.
• SMH: A failed bullish breakout, nearing a potential trend line break.

Conclusion:

The market remains uncertain, with a leaning towards bearish sentiment. The speaker’s analysis highlights key levels to watch in the DIA and IWM, and provides a detailed review of individual stock performance. He underscores the importance of disciplined risk management, quick loss-cutting, and adapting to changing market conditions. The jobs report next week will be a crucial catalyst for determining the market’s direction. The speaker’s trading approach emphasizes pattern recognition and a pragmatic acceptance of inevitable losses.