Leaning Bearish This Week

Hi everyone! Welcome to my same newsletter, but from another platform: Beehiiv! 🐝 ☺️ I had been doing some research on website platforms for a couple of different projects, and ended up making a switch for my newsletter too! Over the next few months, you may see me play around with different formats, colors, etc because..well I want to get you the good stuff on schedule, but I want time to explore different layouts and themes too!

So, welcome and let’s dig in!

On Wednesday, the S&P established a new ATH, but things were looking a little shaky. I closed my call options and kept my charts open, watching the action unfold. While the market was pushing higher, individual stocks weren’t following through with strength. The stocks that were up for the day began pulling back, and many others remained in red throughout the day. This divergence gave me pause because there wasn’t much conviction behind this new high.

Historically, as part of the normal market cycle, we typically see pullbacks in Q1 and Q3 due to the necessary digestion of the natural market cycle. At some point, the market needs to consolidate and pull back before continuing higher. In the past, I have leaned way too heavily on historical data like this, trying to anticipate a reversal, but this time around I paid attention to the market action first. The charts were showing weak volume, exhausted stocks, and a lack of strong momentum following the breakout. I waited until Thursday to check out my theory, and boom, market drops out of the sky. Several put setups showed up, and I took a few positions. With puts, targets can sometimes be hit quickly, so I’ve already scaled out of some, even though I am still anticipating further downside in the coming week.

Looking ahead, there may be opportunities in stocks that have already dipped for several days and are now pulling back into key moving averages before potentially resuming their downtrend. Let’s first break down the S&P and then look for opportunities to the downside if this sell off continues.

The S&P 500 remains in an uptrend, but again rejected from its 6,128 key level. Given the extended rally, I’m watching for signs of a double top on the weekly chart, which could indicate a larger correction ahead. While the index remains above key moving averages on the weekly, a break below the short-term trendline on the daily chart suggests some weakness. A decisive move next week may provide clarity on whether this is just a short-term dip or the beginning of a broader pullback.

Key Levels to Watch:

• 6,128 Key resistance. SPX struggled to hold above this level, creating the possibility of a double top. A breakout and hold above would invalidate the bearish thesis.

• 6,085 First level of support. If index reclaims this level, it could signal continued strength.

• 5,864 - 5,773 Critical support zone. A loss of these levels would confirm a larger downtrend and bring a deeper correction into play.

Potential Scenarios:

Bullish A breakout above 6,128 with strong volume would confirm continuation and likely target higher highs in the trend. A pullback to 6,085 followed by a strong bounce could offer a solid re-entry for the upside.

Bearish Failure to reclaim 6,085 and a break below 5,926 would increase the likelihood of a deeper pullback, confirming the double top formation. Momentum loss and rejection near resistance may result in increased selling pressure.

Neutral A range-bound consolidation between 5,875 and 6,128 suggests indecision, potentially setting up a larger move later. If volume remains light, we could see choppy price action before a clear trend emerges.

I’ll be watching whether the double top confirms, or if buyers step in to reclaim key levels. If selling pressure builds, we may be looking at the first meaningful correction in months.

ABBV is approaching key resistance levels after an extended run, potentially setting up for a pullback or deeper reversal. On Friday, I started a small position on it, because I saw that ABBV struggled to push higher while being extended from the 10 EMA on both timeframes. I felt it could be a late decliner, and depending on next week’s price action, I may look to add to the position if greater confirmation appears.

Key Levels to Watch:

• $203 - $207: ABBV is struggling near this resistance zone. A rejection here could indicate exhaustion, while a strong breakout will invalidate my bearish thesis.

• $197: The first support level below the current price. Losing this level could open the door for a deeper retracement. Looks like a potential for a double top on the weekly.

• $187 - $182: A stronger support zone if selling pressure accelerates, aligning with prior consolidation areas.

Potential Scenarios:

Bullish A clean breakout and hold above $207 could suggest continued momentum higher, targeting new highs within its long-term uptrend.

Bearish Failure to break resistance and a loss of $197 may indicate a reversal, with ABBV pulling back toward the $187 - $182 support range, and even as low as the weekly’s 50SMA.

Neutral Consolidation around $197 and the daily’s rising 10 and 20 EMAs would indicate continued indecision, potentially setting up for a larger directional move in the coming weeks.

Next week’s price action will be key in determining whether ABBV extends higher or if it sees a deeper retracement. I will be monitoring volume and momentum closely before deciding whether to add to my position.

Spotify is pulling away from its ATH, and Friday presented a valid put opportunity, aligning with both market sentiment and a break below the 10 EMA. I didn’t take the trade, but I will look to see if there is a pullback on the intraday charts, for a potential play to the downside.

Key Levels to Watch:

• Recent Highs: SPOT remains near ATHs but has begun to show signs of exhaustion.

• Daily 20 EMA Rejection: Losing this level may provide further confirmation of a greater decline.

Potential Scenarios:

Bullish A strong bounce off support and reclaim of the 10 EMA could invalidate downside momentum. Strength in market sentiment could allow SPOT to continue consolidating before a potential move higher.

Bearish Continued rejection at the 20 EMA could provide additional downside pressure. A break below this key support zone may accelerate selling.

Neutral If SPOT consolidates between 595 and 652 without decisive movement, it may indicate indecision before a larger trend develops.

My bias remains to the downside this week, given the current technical set up and market conditions. While I’m not ruling out calls completely, I don’t see an immediate reason to jump in. If the market continues to show weakness and break key levels, I’ll stick to put trades or even sit out and protect what I have already earned.

Take care this week as you manage existing positions, wait for clear setups, and let the charts do the talking!