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Weekly Energy Equities Review, Market Outlook and Trading Plan for March 15-19

Short writeup this week because it looks like this market has entered that final blowoff leg that I’ve been writing about over the last month. I’ll be on the sideline for the next week or two until I see the final buying climax, at which point I’ll be moving to the short side of the market for what I hope will be a long downtrend. I have no desire to trade this euphoric stage of the market on the long side, the volatility is just too hard to control and the risk/reward on almost everything is fairly poor. I really think the top of this 12 year bull market may be within a few weeks of happening. I may miss some short term opportunity over the next few weeks, but I know what kind of conditions I trade well, and this current environment isn’t one of them. If I’m wrong and this isn’t the top, then no harm and I can evaluate and reset. All I can say if you decide to jump in long at this point is to protect yourself, because when this thing finally does climax and turn, it’s going to be fast.


SPY – New highs and likely headed for 400-420. Nothing but blue sky overhead and the euphoria will be in full swing this week. Watch the upcoming volume and daily ranges. If we start seeing very high volume days with very small ranges, that’s a sign that the market could be topping. Also, be very cautious of a big gap up on Monday and don’t get caught in a gap and trap type situation. Market currently seems to have absolutely no fear of higher rates, which is a bit surprising. However, if rates continue to spike with increased speed, I really don’t see how the market could continue to ignore that. But funny things happen at euphoric tops. If SPY starts to roll over, watch 373.


QQQ – I still don’t like tech. The volume on this pullback that started back on February 17 has been significant and the QQQ has struggled to reclaim the short term moving averages. As rates continue to climb, sellers will continue to be active in tech. Watch 310-311 on the next pullback. As money comes out of tech, see if it keeps flowing into IWM, XLE and KRE.


IWM – The euphoric blowoff leg started last week. In the last six trading days, the IWM has moved almost 13%. This is a 2000 stock index. Those kind of moves just shouldn’t happen in a healthy market. I think IWM is in the final leg of its bullish run and I’m looking for it to top out in the 250 area in the next week or two. I will be putting on a huge short trade soon. The key with IWM is to recognize the buying climax day. On the daily chart, I’m looking for a very wide daily range day on massive volume. As with SPY, if IWM starts producing very small range, high volume days, that’s also a signal that it may be topping. I’d much rather see the single wide range climax day rather than the small range day signal, as it would be a more obvious marker of a top. I want absolutely nothing to do with IWM on the long side right now. I don’t mind missing this move up on the long side at all.


TLT – Still in freefall with rates starting to pick up speed to the upside. It’s really doubtful that SPY and TLT can both keep going on their current paths. Something has to break here soon, and I think the SPY is the one that blinks. See if TLT can reclaim 138 early this week. If it can’t, then it could cascade down to the 130-132 area which would send rates rocketing. No way the equity market could ignore that. The next level down is 118-120. As long as rates keep rising, the banks should keep moving up (or at least stay flat), which has been a positive thing for energy as well. Banks and energy diverged a bit late last week, so watch that KRE correlation to TLT.


GLD/GDX/UUPGLD and TLT continue to move together in the bigger picture, however Friday was a little divergence with GLD managing to stay green while TLT took a 2% dive. The GDX trade I posted a couple weeks ago is still doing well crossing 33. The supply level to watch in GDX this week is 34. If it can break that level, there would be room to 36.50. The dollar (UUP) was a little soft this week, so that helped GLD. I expect that the dollar should strengthen up if rates keep rising, so that could be a headwind for gold and the miners.


Energy XLE, USO

Honestly, I don’t know how the bulls are hanging on to their positions here at this major 54-55 supply level. I’d absolutely be lightening up. I just don’t know how much more reward you can expect from this point, especially if the overall market does what I think it’s about to do. I mean what are longs holding for here, 4-5 points? They could drop three times that much on a pullback and that’s just horrible odds for trading. The only play I could understand here is if you are just trying to exit the long play on the coming market blowoff, but if you watched this past week, energy didn’t move with the overall market. The IWM clearly broke out, yet the XLE couldn’t break that 54-55 supply level. That level may be way thicker than even I thought. But, as I’ve said many times, all this is just my opinion, and I’m often wrong. I simply go with the math and odds in these situations and it’s served me well over the years. The XLE is up over 100% since November. You know the old Wall Street saying, don’t get greedy, especially when the remaining possible gain is so very small compared to the large downside.


Technically, the XLE 54-55 level is still the point to watch on the upside. One thing I’d definitely watch for Monday is a gap up above 55 that fails. If you see that, it’s a top signal and a pullback could follow. However, given that I expect the IWM to make a final blowoff run, the XLE could make one final move toward 60. If traders hold positions expecting more than that, I just don’t know what to say. On the downside, the first significant level is 53 and then 52. In the bigger picture, the next important level down is 45-46. The only way I would consider shorting XLE would be if it got really crazy and made a run at 60 with the IWM topping around 250. On the long side, I might be willing to give it a play on the long side if we get a pullback to the 45-46 area.


One other play I’m watching right now is a short on XRT. I’d really like to see this make a run at 100. Retail seems to be the favorite target of the Reddit/Robinhood crowd and it’s definitely overextended. But as we all know, things can get way more overextended than anyone thinks, especially here in a possible bull market topping area. The key to the XRT short is GME. It’s about 18% of the XRT right now. If it goes crazy and makes another run toward 400, or even 500, then the XRT will go parabolic for a great longer term short. It’s definitely one of those trades that you have to scale into, not plunge.


Again, sorry for the short writeup this week, but there’s just nothing going on for me in this kind of market environment. I’m a short term trader, and often daytrader, but I function best in a slower, more organic price movement type of environment. This euphoric, high volatility action just isn’t my thing. I’ll be watching this week to see just how far price moves and whether I’m right about his being the final blowoff. If I am, then I’ll be looking to get short. If I’m wrong, then I’ll take a week off, reset and come back with a new plan. Good luck this week and most of all PROTECT YOURSELF.

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