Ooooweee did the floor just drop on Friday! I totally feel like I missed some of the clues leading up to it. Because I trade shorter-term options (my trades are typically a few days to a few weeks long), I rarely look at the monthly chart and only glance at the weekly. In the past, folding in higher time frames would just complicate my decision making for the short-term. That said, this week was a good reminder that it’s still worth zooming out at the start of the week, just to see where everything sits.

A side note: I made a change to my moving averages. I replaced the 50 SMA with a 30 SMA, which I’ve now applied across all timeframes. I like how the 30 SMA captures the structure better. I could’ve kept both, but I prefer my charts clean. Too many indicators make it easy to miss what’s actually happening.

SPX Review and Outlook

EOW Stats
High: 6,764.58
Low: 6,550.78
Close: 6,552.52
Change: –2.43%
ATH: 6,764.58 (Oct 7)

Friday’s candle was one of the largest single-day drops we’ve seen in a while, closing down 2.71%. The last time we saw a move that size was December 18, 2024, and even bigger single-day declines in April, at the bottom of the correction earlier this year. What stands out this time is that we’re seeing bearish divergence from the daily chart all the way up to the monthly chart.

Seeing the bearish divergence on the daily chart can mean a short-term pullback, maybe a week or so, but when it shows up across all three timeframes, that synchronicity can point to something that may sustain for a while (I’d quantify a while as a few weeks to a month or so).

On the weekly, we’ve had red candles of similar size before, like in July, but the difference this time is all three time frames are reflecting weakness. I have shifted my forecast from a pullback to a sustained decline, but please make your own assessments. And remember, even if a longer decline does occur, it’s never a straight line down.

At this point, the key levels I’m watching are 6,500, 6,445, and 6,427, where we’ve seen both rejection and support in recent months. If those don’t hold, the next zone lower is around 6,200.

How Next Week Could Play Out

Early bounce toward the EMAs
We could see buyers step in early in the week, bringing a small bounce that retraces toward the 10 or 20 EMA. If the bounce stalls near those moving averages and sellers return, this would point to just a temporary pause of the decline, a short reset before price rolls back over.

Shallow retest to the 30 SMA
I could also see a quick retest, maybe just up to the 30 SMA, which now lines up with the May uptrend line and roughly the 6,600 area. That kind of move would make sense if the market just wants to back-test that breakdown point before continuing lower.

Chop under resistance
Another possibility is that buyers and sellers go back and forth, and we see range bound activity, without a strong push in either direction. This could still be in a wide, volatile range, given the drop we had Friday.

Continuation lower
And then, of course, there’s the chance we continue down right away. If that happens, we could test 6,500 early in the week, and depending on how quickly that drop develops, we might see a move toward 6,427, which is less than 2% away. 6,200 would be crazy and reminiscent of earlier this year, but I won’t count it out. If we do sustain a decline, the move will still be a mix of mostly red, and some green days as it works its way down.

Overall, most of what I see involves some kind of early-week retest, whether it’s light or deeper, followed by another check lower.

AVGO Trade - Final Update!

I ended up making just over $500 on this AVGO trade, but what stood out most to me during my review, were the clues my stocks were hinting at about the broader market leading up to Friday’s sell-off. I didn’t catch how much selling pressure was already building underneath.

I got in on a setup I’d been watching for a while and held through a few tests of support. I adjusted my plan to take one contract off at a 50% gain, and Thursday gave me that opportunity. I sold the second contract the Friday around break-even as the market started to turn. In hindsight, that midweek strength I was seeing was really just the last leg before the reversal.

In reviewing both this trade and the price action across my watchlist, especially after Friday’s sharp flip, I’ve decided to tweak my trading plan. I’m now setting automatic sell orders at certain profit percentages to close my positions in full when I’m trading later in an uptrend. I still don’t use stop-loss orders on options since they can trigger too easily, but I’d never considered automating my take-profit levels. The take profit sell orders I set will be determined by the key levels I map out on the charts, so the percentages will vary depending on structure.

Final Thoughts and Notes

I’ve called declines in the past that were just a 2-4 day pullback. I am just laying out what I see and making my best forecast possible. As always, let the charts tell you what is actually unfolding and stay sharp. I do think this will be a very volatile week.

Thanks so much for tuning in! ‘Til next time!