The Week Ahead + Watchlist January 18-21, 2022

Last week I pointed to the possibility of a shift to the downside in the near term and this is ( sort of ) starting to play out. I say “sort of” because the deep sell offs have found buyers so far.

We are going to take a closer look at this and see if we can chart the way forward.

I plotted this crude looking trend line so you could see what the recent price action has been like. We penetrated the trend line a few times and found buyers /demand down there.

It is often easy to interpret this as a sign of strength when the trend line has survived so many attempts to break it. However we have to bear in mind that on each attempt it may very well be “chipping” away at the buyers and that, at some point, with the right context, we could see the buyers melt away.

Furthermore, hanging out around a trend line for too long is usually a sign of weakness and the failure to vacate that area after multiple attempts at breaking usually signals a possible break down.

I am not saying that this is what will play out but I have seen it often enough to know that it can, and does happen. Besides, the market breadth is also confirming the weakness:

Earnings season is about to kick into high gear and the results (and reactions to the results) of some if the big tech and industrial names will have an impact on near term market direction. So even though we can see the weakness, this can change quickly.

 

Lastly, the Energy sector out performed everything else last week as the winter rolls on and shortages tick up in parts of the Northeast and over in Europe.

I can see a direct line between these shortages and the irrational rush to “decarbonize” without having enough reliable renewable sources to pick up the slack. But this whole thing can get unnecessarily political so I will leave it for another time.

I am actually looking to short energy , via the XLE . This doesn’t mean that I think the uptrend is over. I just think it is extended on this current move and we could see a pull back. The setup is on the watchlist with a few others. 

You can find the Watchlist here: https://ivtrades.com/options-watchlist/ 

See you tomorrow! 

Chris