Week Ahead “2nd – 6th of May 2022”
Welcome to the Week Ahead, a free weekly newsletter that gives a reader macro technical insight about the most important financial markets such as Index futures, commodities, currencies and crypto.
In this weekly outlook, I will provide you will significant weekly and daily levels across different markets; on some occasions, I will get biased towards possible scenarios, but I will do my best to keep things neutral.
Markets constantly change, so you must implement your strategy and trade execution around these levels. Nothing I say should be used directly as financial advice or traded blindly.
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Compared to the prior week, this one is filled with important fundamental releases.
Although the new week starts with Bank holidays in some countries, it is shortly followed by FOMC and NFP on Wednesday and Friday.
Besides that, Thursday is filled with essential events in Great Britain.
As mentioned last week, I was not really interested in getting long on ES, although it was sitting at a minor support area.
This turned out to be a wise choice as the market closed with 4th consecutive down weekly candle in a row.
Since the 2020 covid crash, this only happened once in September 2020, but the S&P500 rose shortly after.
I think we are very far from the “up only” many were used to in the current fundamental outlook.
That being said, I am looking for possible bottom inside the low volume area between 4100-4000.
The daily chart gives us a cleaner look at this area of support.
When it comes to buying bounces in downtrends, you want the reaction to be very sharp and immediate.
If we would trade below the prior lows and quickly reject, I would be looking for longs this week.
If the price sells off towards 4000, you need to be aware of the fact that the 4100 level, which was acting as support for a whole year now, can very easily act as resistance on a retest.
Therefore if you want to wait for a “safer” long, I would recommend waiting for the price to do its business below and only long once 4100 is re-accepted.
Below 4000, there are not many clean untested levels, and as you can see, the next higher build up in the volume is at 3400, which is another 600 points lower.
Bitcoin held fairly well last week, considering how much equities sold off.
At the beginning of the week, I mentioned possible relief from three drive pattern, which I gave a shot on the long side but got stopped out and for the rest of the week, I listened to myself and decided not to trade Bitcoin at the composite point of control, which is often the reason for “choppy” price action.
Although Bitcoin sold off less than equities, it is definitely not a reason to become bullish.
Once again as BTC is sitting at the fair value for the last year and a half or so, I am not really interested in trading at those prices.
Due to overall weakness in risk-off assets, I expect more downside until the S&P500 find the bottom, for Bitcoin this could mean a yearly low at 33k or double bottom at 28k.
The daily chart gives another level of support at 37k below the previous double bottom, which could give a nice intraday/intraweek bounce.
Other than that I have marked out the current daily high at 40.3k that led to the low, reclaiming that above the yearly vwap would be solid confirmation of the bottom in place and possible rally back towards 44-45k.
Although this doesn’t seem very likely right now, it is always good to be prepared.
To sum things up Bitcoin doesn’t feel like an attractive buy at the moment, but if ES find the bottom things can quickly change, especially since the overall sentiment is set that we are definitely going to 28k.
Dollar Index and Euro
Last week I mentioned 103.8 level as the next logical destination with the high of the week being 103.9.
As we hit this level of resistance I would expect at least some pullback in the next week.
Although most will assume that this will result in strong indices and BTC, as mentioned last week you should really be only looking at Euro (and other Forex majors) since Euro makes over 50% of the Dollar index.
On EUR/USD itself, I was definitely expecting a reaction last week after we took out the “Covid” lows but the price just smashed through them without any hints of bounce.
As the Dollar Index reached a resistance now and Euro hit another weekly level of support, we might see a relief rally this week.
Although the price already reacted on Friday, we sold off in the last few hours before the week closed so the daily candle is not so convincing.
What I would like to personally, would be run of the prior week’s low and possible longs if markets manage to show strength.
As mentioned last week the weakness in Gold was definitely interesting considering the weakness of risk-off assets as well.
Without inflating my ego too much this was a really good insight as Gold also had quite a negative week.
But as the market reached the level of S/R on Friday after running all the key daily lows, Gold was looking very solid for reversal higher.
Similar to the euro this got ruined in the last few hours on Friday.
Coming into the new week I will be looking for possible short term relief.
If the price trades below last week’s low again and doesn’t show any strength, I will definitely try to play another short leg and will use Thursday’s daily candle as a “long trap”.
My longer-term short target would be double the bottom around the 1780 area.
When it comes to my personal trading there were not many setups last week.
One trade that I took which resulted in a nice winner was in Crude Oil due to the bullishness I mentioned last week.
Not much has changed on a weekly chart, we are still compressing volatility inside this wedge pattern, as I mentioned I am not a pattern trader so this is the only signal for me to expect a large move soon.
Although the trade I took was great, it did not hit my original target of the prior week’s high and I got trailed out on my stop-loss for around 4R win.
On the other hand, the price is at an interesting spot at the moment, as you can see on Friday we were trading way above that trendline at one point which definitely gave a trigger to lot of pattern traders to go long.
Since the market sharply reversed shortly after, all these market participants are now stuck in underwater positions.
This gives me a slight short bias coming to next week and I will be looking to catch some short plays.