3 Lessons From My Mistake. Opex & Powell Are on Tap!

We’re breaking the range but have one hurdle left

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Our View

I want to explain how the Our Lean section works.

A bullish lean is a straight up buy-the-pullback approach. There’s also another component of selling the early rallies and buying the pullbacks, but obviously the latter is trickier if the ES is trending up.

A bearish lean is if the ES opens down, to buy the early weakness and sell the rallies and the more negative lean is to just outright sell rallies.

On Tuesday I started buying the NQ and I dragged 1 long NQ because the rotation was buying tech which has been spot on. After making a little Monday, I lost money Tuesday and made back the loss plus ended up having a good day Wednesday. Yesterday I started out buying 2 ES and 1 NQ just a few seconds after the open. I made small on the NQ and ended up making a few points on the ES after the last dip.

After that I broke all the rules.

I was not long and I started selling and I increased my size. Around 10:30, I told my chatroom that there were ‘buy stops’ in the ES from 4186.50 up to 4210 but by that time I gave back what I made Wednesday and a little more. You know that song “I’m only human?” Well that’s me.

After Wednesday’s close and watching the ES rally on Globex, I thought that ES 4200 was dead meat — but I still shortened it. Knowing the congestion of buy stops that had built up, the Lean should have only been to buy weakness.

The moral of the story is three fold:

Our Lean

I can’t rule out some selloffs, but the ES should see higher. Today options expiration and all the short gamma positions should help that idea along. Remember, the ES has rallied 87 points this week (and 105 points from Tuesday’s low) so it could get whippy.

Most people think that the government will come to terms on the new budget, but it could fall short of expectations. The PitBull said it could be a “sell the news” event, which is reasonable, so I’m taking one day at a time.

Lastly, stock volatility could be higher than usual today as about $1.7 trillion of derivatives contracts tied to stocks and indexes are scheduled to expire, according to data compiled by Goldman Sachs.

As for levels, two really stand out on the upside: 4220 and 4242-4250.

On the downside, active bulls want to see the ES hold 4200. Below that and they’ll want to see 4175 hold.

Remember, Powell’s on tap this morning and it’s Opex. So plenty of shenanigans are expected.

MiM and Daily Recap

The ES traded up to 4183.75 on Globex and opened Thursday’s regular session at 4167.25. After the open, the ES traded 4161.25 at 9:34, back and filled at the VWAP for the next 20 minutes and then traded up to a new high at 4198 at 11:11. After the high, the ES pulled back to the 4188 area, back and filled for the 25 minutes, traded up to a new high at 4199.25 at 11:57 sold off down to 4175.50 at 12:15, traded back up to 4190.75 and then slid down to a new low at 4172.50 at 2:01.

It was that low that set up the late afternoon rip. At 2:43 the ES traded 4188, pulled back a little, traded 4192 at 3:05, down-ticked and traded up to 4198.75 at 3:21 and then shot up to 4210, then up to 4215.50 as the early MIM showed $881 million to sell. The ES traded 4107.50 as the final 3:50 imbalance showed $936 million to sell and quickly flipped to $2.76 billion to buy. The ES traded 4112 on the 4:00 cash close. After 4:00, it traded in a narrow range off the highs of the day and settled at 4215.50, up 44 points or up 1% on the day. The Nasdaq (NQ) and the market leader closed up 269 points at 13,912.50.

In the end it was a very good day for the index markets. In terms of the ES’s overall tone, it was firm all day. In terms of the ES’s overall trade, volume was on the high end at 1.66 million contracts. After 4:00, the last two days someone has crossed thousands of ES. Wednesday after 4:00 25k ES traded in several big orders and 30k traded after 4:00 yesterday. I am not sure if it’s a large institution moving a futures position or an EFP, exchange for a physical.

Technical Edge

We’ve got a pretty low VIX and some interesting action lately after yesterday’s low-breadth squeeze. Thursday’s action felt more like shorts being forced to buy vs. longs sizing up and getting long.

Interesting action though and there’s no doubt Opex is playing some games here. DXY ripped yesterday right into our target zone. Bonds are making new lows on the move, now near 10-week lows, while the 10-year yield (TNX) is near 10-week highs.

While we’re getting a range break in the indices, our individual stocks enjoyed another wave of momentum yesterday. Cheers

S&P 500 — ES

Cleared 4200, stalled near our 4220 level as it sits between yesterday’s two “bolded” zones of 4198-4206 and 4242. Which one comes first?

SPY

Daily-up and rip.

On an intraday basis, I will be looking to buy a dip in the SPY and SPX. Above is the 15-min look. Ideally, I’d like the 30-min, as we are on Day 3 of the move.

However, I am keeping an eye on yesterday’s resistance level — $417.50 to $418 on SPY, 4175 to 4180 on SPX), along with the Q1 high and 10-ema on the 15-min chart. If that zone is tested early on, I will likely try a day-trade long in that zone.

SPX

One scenario that stands out for me is, can the SPX hold 4187? It doesn’t seem important, but if it breaks this area — and we give it a few points to find its footing, of course — and can’t regain it, then maybe we get a retest of that 4150 area.

QQQ & NQ

Not much more to say about these two. The Nasdaq has blown through every upside target we’ve laid out. Let’s let them reset before trying to re-engage.

DXY

We covered DXY earlier in the week, but it gave a swift move into the 103.30 to 104 area that we had been talking about.

If we get some weakness today, it could act as a tailwind for the S&P. That said, yesterday’s DXY strength did not act as a tailwind, so don’t look at it as a 1:1 correlation.

For those long, congrats.

TLT

Doesn’t have the best look to it as TLT continues to melt lower. Let’s see if it can find its footing in the $100 to $101 area. If it gets that far, I suspect buyers will emerge, if only just for a bounce.

Now down in five straight sessions.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META and AVGO.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

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Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!