SPY, QQQ, and Trading IWM
The first quarter closed out strong and small caps set up for a move higher.
I hope you had a great week while I was out, battling to get back to feeling normal again. Which I am happy to report I finally do in fact feel myself.
And there is no better time to get back into it than at the end of the quarter.
Taking a look at the first three months of 2024, there was little doubt that we would see upside but I don’t think anyone expected this kind of start.
The quarterly chart for SPY tells the story, highlighting a huge breakout after testing and punching through the prior 2021 high.
The above chart goes back to 1994 and each candle represents three months of performance. The past three months, again, were impressive.
Since 2009, there have only been 15 red quarters out of 57 total. Say what you want about the factors behind this impressive run, the chart tells me all I need to know.
Also notice the massive increase in Average Trading Range (ATR) over the past six years. Stocks and the indices move in more dramatic ways which creates great trading opportunities for all of us.
Shifting focus to the chart for QQQ and zooming in on just this year’s performance, you can see on the 4-hour candles that we have definitely started to consolidate.
February and March were spent trading between 434 and 446 for QQQ, which the big tech names that led the way in 2023 starting to take a pause at the start of 2024.
If this consolidation holds in the upper half of the trading range, effectively holding the 440 support level, I like more upside to follow with a breakout of the range.
If shares drift back to the bottom of the range, big tech could continue to consolidate while other areas of the market continue to catch up and perform well.
One area I continue to pay close attention to is small caps, specifically IWM.
This ETF has been trying to bounce off of the 205 support level after finally getting above 200 and holding firmly.
We saw a higher low followed by a higher high last week which is why I am considering trading IWM this week.
I would like to see 208.74 hold but even more importantly I am looking for a move above last week’s high of 211.88 to go long with call options.
Notes:
IWM needs to break above last week’s high, continuing recent momentum and clearing the way for a big move up.
If 204.26 breaks, look for a potential sell off back below 200.
Action:
Bulls are looking for a break above 211.88, taking entry on the move above this level. Waiting for a second candle to close is a way to reduce risk but I am considering initiating a position on the first break of resistance.
Bears are looking for a drop below 204.26, ready to capitalize on near term downside.
Targets:
Upside targets are 211.88, 214.61, 221.97, 231.35.
Downside targets are 204.26, 197.87, 187.53, 183.63.
Execution:
Breakout Trade -
Considering buying the April 19th, 215 strike call options on a break above 211.88 or after a second candle closes above this level.
Stop loss at 208.74 or 50% loss on the options contract.
Breakdown Trade -
Considering buying the April 19th, 202 strike put options on a drop below 204.26, taking entry either on the break or waiting for a retest and rejection to enter.
Stop loss at 205.50 for this short trade or 50% loss on the options contract.
I have am leaning bullish for this trade but will wait to see how the week starts.
Tomorrow I will have a couple of additional tickers for upgraded subscribers ahead of the opening bell.
You can also expect a few future newsletters about how I utilize anchored VWAP as well as how to set Fibonacci levels for any ticker you are interested in.
I hope you are enjoying the long weekend and are ready for another full week of trading ahead!
-Nate
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This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
$IWM has been getting a lot of attention recently...I was considering making a play but decided against it because I didn't love the set up of the strategy I came up with.