Our View
It’s the last trading day of November and money is flowing back into stocks. Tesla roared higher by more than 5%, while FAANG, semiconductors (via the SMH), Nvidia, AMD, and others all came surging back to life. The move took the ES for a ride on Monday. Even oil — which was obliterated on Friday, down 13% — caught a strong bid on the day despite finishing well off the session high.
Everything was moving.
Our Lean
Today is the last trading day of November. There is no doubt the ETFs and mutual funds have been selling the losers and marking up the winners. Fed Chairman Powell is going to address Congress today on the threat that the Omicron variant poses to the U.S. labor market and how it could cloud the inflation forecast.
Our lean is, the last trading day of November is bullish, but the new Covid variant is quickly causing massive uncertainty around the globe. If the ES gaps higher, I want to sell the open or the early rallies and buy the pullbacks. If it gaps down, we need to see how it handles Monday’s low.
Remember, the ES goes down 10x faster than it goes up and it already rallied sharply yesterday.
Danny’s View: The Opening Print Recap
Monday’s action was the exact opposite of Friday, with bulls dominating the day. While impressive, the ES’s 55 point gain could only do so much to erase the 103-handle decline we saw on Friday.
The ES traded up to 4649.50 on Globex — up 60 points from the overnight low and up more than 72 points from Friday’s low — and opened Monday’s session at 4645.
From there, we had a quick rally up to 4650 in the first few minutes of trading, the exact level we laid out in yesterday’s Opening Print. Not too shabby, particularly as the ES went on to fall down to 4628.75 before doing some back-and-fill and trading up to 4640.50 at 9:57.
After selling down to 4621 at 10:43, the ES started grinding higher and traded 4637.25 at 11:19 and continued to climb. It made seven higher highs all the way up to 4667.25 at 12:26 after the Fed and Biden Administration said the US “Won’t Need Shutdowns, Lockdowns This Winter” and that lockdowns Are “Off The Table For Now.”
Lockdowns and increased restrictions pose a big risk to the economy, so if that’s off the table, then the stock market should be happy.
After a small pullback, the ES traded up to a new high at 4669.75 at 1:14. But bulls weren’t out of the woods quite yet though. The S&P futures made a series of small lower lows and dropped down to 4658.50 at 2:40, traded 4668 at 3:16, and pulled back down to the 4661 area as the early MIM was showing over $700 million to sell.
After a small uptick, the ES traded down to 4654 as the 3:50 cash imbalance showed over $3.1 billion to sell. On the 4:00 cash close, the ES traded 4650.50 and after 4:00, the futures dropped down to 4647.25.
Then a bunch of ES and NQ buy imbalances showed up, pushing the ES back up to the 4656 area at 4:12 and settled at 4655.75 on the 5:00 futures close.
In The End
Like I said in yesterday’s Our View: When the rally starts, the ES will go up just as fast as it went down. We saw that on Monday.
In terms of the ES’s overall tone, both the NQ and ES were especially firm. In terms of the day’s overall trade, volume was high with 1.95 million contracts trading in the S&P futures.
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
Technical Breakdown — Breadth, SPY, QQQ, DAX
NYSE Breadth: 47.40% upside volume
NASDAQ Breadth: 50.25% upside volume
It was great seeing the markets bounce back on Monday after Friday’s poor action. However, breadth was mild at best (about 50/50 in terms of upside volume). While a 55-handle rally for the S&P and a 340-point gain for the Nasdaq is no small task, we’re not fully out of the woods just yet.
After Monday’s action, the Nasdaq looks better than the S&P 500.
S&P 500 and SPY
The daily ES chart is pretty straightforward. As the S&P futures dip overnight, we have to watch last week’s low at 4577.25.
The ES already took out Monday’s low — essentially erasing yesterday’s gains — although it’s bouncing from that area a bit now.
Keep 4577.25 on your radar. A break of this level that isn’t quickly reclaimed opens the door to the 4535 to 4550 area and the 50-day moving average.
It seems foolish to outline this area yesterday when the ES was up so much, but it’s proving prudent today, particularly as the S&P failed to reclaim the 10-day and 21-day moving averages.
That’s clear on the SPY, too.
Notice how the SPY filled the $465.19 gap from Friday but was rejected by the 10-day and 21-day moving averages.
This was a key area we were watching yesterday and while the indices did do a good job rebounding, failure to reclaim these moving averages keeps it a two-way trade — no one is necessarily in control quite yet.
That changes on a break of Monday’s range (either above the high or below the low).
It looks like it will be the latter near the open.
On an open below $461.73, let’s see if the SPY can reclaim this level or if it’s rejected by it.
If it remains below Monday’s low, it leaves the SPY vulnerable to last week’s low at $457.77. Below that and the $455 area could be in play, along with the 50-day moving average.
Nasdaq and QQQ
Notice the better action we had in the QQQ. That’s not surprising given the strength in FAANG, semiconductor stocks like AMD, NVDA, and QCOM, and the 5% rally in Tesla.
The QQQ went daily-up over $397.54 but struggled with the prior all-time high at ~$401. The pre-market pullback is milder than the SPY, which is good for bulls.
From here, it’s simple. The better the QQQ holds up, the more control bulls can retain. Above Friday’s high would be great, as maintaining above $397.50 also keeps the QQQ above the 10-day and 21-day moving averages.
Below Monday’s low at ~$395 is less constructive, putting the QQQ below its short-term moving averages.
Obviously, a move over $401 is bullish.
The Nasdaq futures are similar, although slightly different story.
The 16,436 area is proving important. That’s Friday’s high, but it’s effectively Monday’s high as well, along with Tuesday’s Globex high too!
So if we can get a rotation over this level, I think it could put 16,600 in play. For now, the 21-day moving average is acting as support near 16,240.
An undercut of the Globex low (at 16,238.50) could put a bullish reversal setup in play if this level is quickly reclaimed. If it’s not and we have a sustained move below 16,000, then bears could gain some momentum.
DAX
From all-time highs two weeks ago, to down almost 8% at this week’s low, the DAX has fallen quickly.
Keep an eye on the 50-week moving average here, at roughly 15,126. Back above that mark now, aggressive bulls may consider staying long above this week’s low at 15,015. Below this mark could put the 14,800 area on deck.
Individual Stocks
Starting with Home Depot (HD), we have a pretty straightforward setup as we get a bull flag consolidation pattern after a strong earnings reaction.
Let’s see if the 10-day and $400 level is support. I’d like to nibble a dip to this zone.
Lending Club
Lending Club (LC) is not typically a top trading vehicle for investors. However, I like the dip back down to the 50-day moving average and gap-fill level at $34.79.
LC is gapping lower this morning, so the setup may not come to fruition. But a two-times daily-up rotation over ~$37 could give us a nice pop. The declining 10-day moving average would be my first “quick profit” target.
Macy’s
Macy’s has a similar setup, but on the weekly look as it approaches the 10-week moving average. Shares are lower by about 2% in pre-market trading, but we need to see $28 to $28.50 to actually get a test.
Other Candidates on Watch
COST
BLDR
DLTR
Disclaimer: Charts and analyses 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!
Economic Outlook
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