Why Risk Management Wins When Direction Gets Tough
Stocks Finish Mixed - Support and Resistance Levels for Next Week: Indices, Futures, Megacaps, ETFs, Metals, and Crypto
This past week was a key stress test for our Support and Resistance levels. It was a week characterized by a major move where the market finally reversed as anticipated in the Weekly Compass where I noted: “a breach of the SPX Central Weekly Level (CWL) is the expectation” and for NDX it was anticipated: “the 20 weekly average is the likely target”.
We anticipated the bearish direction, with NDX, AAPL, and GOOG all hitting their respective downside targets using the levels for this week (dropping -2.3%, -6.5%, and -2.1%). While the levels were correctly forecasted for these high probability declines, the high velocity of the selloff was unprecedented.
Here are four takeaways from this week on why capital protection allows us to thrive even when the waters get choppy using the S/R levels and high probability setups.
1. The Importance of Specific Targets
We correctly identified the direction for this week in the SPX and NDX based on breadth indicators, tech weakness, and a VIX screaming for a bounce. The price levels modeled acted as precise reaction zones: $24,949 served as the exact bounce zone for the NDX, $325.5 for GOOG, $162 for PLTR, and $440 for MSFT just to mention others marked as bearish last week apart from the ones with higher probability.
Over the last two Wednesdays, I’ve shared educational content on the importance of structured setups and how to navigate them. The purpose of a “Target” is to lock in profits before the tide turns, or to move a stop loss if the target is surpassed with conviction.
The Math: If a trader locks in a consistent 2% per week, the compounding gains are massive. Even a modest 1% gain per week results in 52% annual growth (of course we seek for more and this week the average gain was +3.2%).
The Execution: Our bearish levels for SPX and NDX were reached by Tuesday. That afternoon, I issued a note highlighting the overextended VIX and considering a bounce for SPX and QQQ, providing specific levels for Wednesday so you could validate it: $6,819 (SPX) and $610 (QQQ). Both levels represented just +0.3% recovery from the lows and an initial validation of a potential bounce that materialized.
The Lesson: Targets are not arbitrary when they are corrected modeled; they are your mechanism for banking wins before volatility can erase them. This publication provides professional price targets for 32 securities including futures, stocks, ETFs, Indices, and Crypto; or 44 securities if we add the levels for popular leveraged ETFs like TQQQ, SQQQ, URTY, UDOW, or SPXS. Unlock all of those levels upgrading the subscription to paid.
2. The Importance of Invalidation Levels
Protecting capital is Priority #1. In this modeled approach, if the price moves against us, one of two things happens, both of which protect your account:
The Trade is Invalidated (Zero Loss): If a setup requires the price to be above our Central Weekly Level / CWL (like a Long setup) and the week opens below it, the trade is in invalidation mode. There is zero capital loss. (It happened AVGO).
The Stop/Invalidation is Triggered (Marginal Loss): If a position is open, we cut it using the invalidation level as reference. This week, the Crypto rally vanished. Our setups for BTC and ETH were breached. However, because we respect levels, the pullback resulted in a loss of -1.1%. (For people who uses IBIT or ETH etf the losses were zero, since by Tuesday (when they could be traded) their prices were below the central weekly level (CWL), invalidating the bullish thesis.
3. The Power of “Runners” (Strong Setups)
Even in a sea of red, quality setups shine. COST has been on our radar for weeks. Its high probability bullish setup was outstanding on Tuesday, ignoring the broader market weakness to rally through its target for a >2% gain during the week.
This is the essence of our strategy: We let the winners (like COST, AAPL, GOOG, and NDX) run to their targets, while we cut the losers (like Crypto) at the knees, and the invalidated ones are never triggered (like AVGO).
4. The Intrinsic Message of the Watchlist
We learned that the watchlist itself is a market indicator. Out of 30+ securities analyzed last week, 13 were bearish setups (15 if we include inverse ETFs). When nearly half of a diverse watchlist including heavyweights like BRK.B, NFLX, LLY, MSFT, AMZN, GOOG, TSLA, AAPL, and JPM flags bearish, the market is sending a message regarding breadth and sentiment (All of them reached bearish levels modeled a week ago).
Summary
Despite the difficulty of the week, the math speaks for itself:
Average Gain of Winning Setups: >3.2%
Average Loss of Failed Setups: -0.7% (-0.4% if using IBIT or ETH ETF since they started the week invalidating the setup, below their CWLs)
Let’s turn our attention to the week ahead. Below, you will find the S/R levels and gauge the bullish or bearish intent for the following securities:
Indices: SPX, NDX, DJI, IWM, ES=F, NQ=F
Majors: AAPL, MSFT, GOOG, AMZN, NVDA, META, TSLA, BRK.B, LLY, WMT, AVGO, COST, JPM, PLTR, NFLX
ETFs & Commodities: SPY, QQQ, SMH, TLT, GLD, SLV, DIA, SH, PSQ
Crypto: Bitcoin, ETH, IBIT, MSTR
Leveraged: TQQQ, SQQQ, UDOW, SDOW, UPRO, SPXS, URTY, SRTY
Make sure you have the right tools to navigate this market. Subscribe now to the paid plan, unlock the S/R levels for next week, access tomorrow’s Weekly Compass and my eBook on Advanced Technical Indicators, which includes a dedicated chapter on mastering S/R Levels. You can find the eBook here, right below the Weekly Levels. Join now to unlock our high-probability setups for the week ahead!
WEEKLY LEVELS