14 May 2023 SPX Weekly - Debt Ceiling

Accuracy: 61/67 (91.04%)

SPX still above 4050 - Correct!

Paper Trade

Pretty calm week, full profit on this trade. In fact, SPX only dropped 12 points from last week. The low vix environment resulting in nearer strikes did also end up a narrow movement week.

Last Week

I wanna start with the 30 minute chart because the daily candle one really can't show much. Look how narrow we traded last week. SPX stayed within 50 points move for the entire week between 4100-4150. Feels like accumulating for some big movements ahead.

On the daily candle chart, let's take a look at the zoom out perspective. Once awhile we wanna step back and see where we're at now to get a higher level perspective.

Ever since Oct 2022, we've been making higher highs and higher lows until recently. In the past one month of rally, SPX seems to struggle breaking higher high and we consolidate in the current area for over a month.

Economic Calendar

A long list of events next week having many Feds and FOMC speakers and activities with a Friday finale of Powell speaking. It's gonna be an increase volatile week compared to last week with all these speakers generating unnecessary random fears. Be it good or bad things they say, we're gonna expect larger moves.

Not to forget the hot topic in town now is Debt Ceiling.

Debt Ceiling

To better understand debt ceiling, while playing with the new AI hype tools, last time I dropped a chatGPT snippet. This time let's do bard. Below is a response from bard:

Basically, volatility.

But do be aware this is closely related to the whole financial situation we're in. Starting from inflation to interest rates to banks failing to debt ceiling. This whole series of financial sector situation have been causing much volatility time to time for the past 1-2 years.

The interesting fact though is despite a series of bad news on the financial market, SPX still trade higher since october 2022.

Next Week

Since we didn't move much for more than a month, the support and resistance area stays pretty much the same. But with the increased volatility expectation from economic events and debt ceiling, I do lean towards a slightly bearish stance.

Green - 4200 remains the key resistance for higher high

Yellow - 4050 tested twice recently

Orange - 3900-4000, I find this area is my high likely pullback zone for next week

Red - 3800 previous significant low, will be the worse case if we can reach here in a week

Prediction

So I lean bearish and orange case but not forgetting we're on an uptrend still. So I'll go further down to find a support since I expect larger movements.

SPX above 3900

Paper Trade

This time I'm gonna do inverse iron condor again. Reason is really because in the current lower vix environment, strikes are nearer which makes credit premium looks too close for comfort. Instead, an inverse iron condor gives pretty good 1:1.1 risk reward ratio.

This trade also coincides with my expectation of SPX going to have larger moves next week. The only irritating part would be the big moves end up closing near where we started for the week. But well, just let the trade play out and observe.