Our View — Rollover
This Thursday is ‘Rollover Day.’ That’s when the March 2022 contracts will be traded as the front month for the ES, NQ, YM, and RTY index futures. Based on the S&P performance recently, Roll Day could increase volatility.
What do we know for sure? That only a small percentage of the shorts have covered and I still like a net-long approach.
Looking ahead, the Fed’s two-day meeting is December 14th and 15th, while Quad Witching is December 17th. Then at the end of the month, we have the all-important December and end-of-the-year rebalance.
So, these are just a few things to start thinking about.
Our Lean
It’s not impossible that the ES trades back up to the highs — or higher — but every day counts going forward. I know I moved my ES forecast from 4700 up to 4900, and while I am staying with the trade idea, I may start looking at the January ES 4800 calls. They are more expensive but will give you more bang for the buck.
As for today’s lean, I still think you have to sell the gap ups and then buy the pullbacks, which I suspect could easily be 30 points — if not more.
The other scenario is the gap-and-go. That could set up future gap-up opens and an acceleration to the upside.
I know the ES had a nice rally yesterday, but I don’t think it’s over. There is a high level of buy-stops above current levels and my guess is there are some big upside stop runs on the horizon.
The Opening Print Recap
The ES had a wild night of rips and dips on Sunday evening coming into Monday. Once the DAX opened though, the ES fell from 4572 down to 4531.50 as the DAX sold off 200 points.
Just before Monday’s open, the ES rallied back up to 4565 and traded up to 4570.50 at 9:33, then dropped 31 points down to 4539.25 at 9:39.
But it turned right back around, rallying up to 4588.50 at 11:00. After the push, the ES sold back down to 4568.75, then started a methodical climb back up to 4611.75 just after 2:00.
Following a little sideways-to-lower price action, the ES sold off to the 4589 area as the MIM showed over $370 million to sell and then double topped at 4599.75 as it sold back off down to 4586.75 at 3:47.
The ES traded 4593 as the 3:50 cash imbalance showed $700 to sell and then rallied up to 4599.25 and traded 4590 on the 4:00 cash close. The ES settled at 4595.25 on the 5:00 futures close, up 62 points or 1.37% on the day.
In The End
In the end, the S&P and crude oil rallied, but the real money was in the Dow, which rallied 700 points. The PitBull has a term “water in the bathtub” — meaning the big programs can push the water one way, then push it the other way.
If you take the overall price action of “up a day, down a day” we should be down today. Will it happen? I don’t know, but it would be nice to break the pattern.
What I do know is everything feels unhinged. How often do you see the ES trade in a 70 to 100-point trading range or the VIX above $30 like it was on Friday? In terms of the ES’s overall tone, it was firm. In terms of the day’s overall trade, volume was high at 1.95 million contracts traded.
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
- NYSE Breadth: 79.8% upside volume
- NASDAQ Breadth: 66.4% upside volume
The strong breadth days continue in both directions. We have seen a constant barrage of 80%-plus upside and downside days, mostly favoring the latter over the last week or two.
Yesterday’s near-80% upside move made it tough to fight the upside trend, even as the S&P 500 wobbled a bit early on. I love that Danny writes The Opening Print at night and (for the most part) avoids altering it in the morning.
When he said there could be more upside due to increasing buy-stops, I believe he is right. I thought a lot of the recent selling was more capitulation, tax-loss harvesting, and reducing size than anything. I didn’t think it was outright short-sellers. But that very well could be the case.
Yesterday, I asked “Can they reverse?” referring to ARKK and other high-growth holdings.
It did not give us the traditional bullish reversal, but ARKK did a great job of breaking Friday’s low and then reclaiming it. That came with a trade too and I’m glad we had it Monday’s game plan.
There were clues yesterday if you knew where to look, particularly with ARKK. It broke Friday’s low, quickly reclaimed it in the opening 15 minutes, and held that level as support.
While the SPY was weaker late in the day, ARKK went out near its session high. That didn’t guarantee this morning’s pop, but it sure gave a confidence boost to those who are still long.
As for the indices, let’s look at where they will open.
S&P 500
Starting with the S&P 500 futures, notice how we’re rallying about 60 handles now to the 4650 area.
On Monday, the ES pushed above the 10-day moving average and yesterday’s high, but the late-day fade caused it to close below both marks. That technically left the S&P vulnerable, although the overnight action has clearly changed the situation.
Regardless, we are getting a gap-up into the 21-day moving average and an area “full of failure” as support flipped to resistance in the 4550 to 4570 zone. Last week’s high sits up at the top of that range.
The ES could gap into, then push through these marks. However, the more likely play would be a gap-and-fade. The question from there is, where does support come into play?
It’s still early in the week, but if we can finish it on a weekly-up note over 4670, it’s hard not to like a retest of the highs.
The SPY is in a similar situation and you can see the pre-market pricing on the chart above. Set to gap into last week’s resistance and the 21-day moving average, I think we need to be a bit cautious in the opening minutes of trading.
The one thing to watch will again be growth stocks. Can this group keep a bid underneath their stocks?
Yes, 2% to 5% rallies feel good, but many names are down 50% or more. They will need more than a few meager rallies to really turn around. But if they do, it could propel the markets higher.
Individual Stocks
You have to be quite happy with how some of these trades have played out. Not everything has triggered over the past 10 days or so, but that’s likely to be the case anyway. What has triggered just in the last day or two has done well:
- DLTR went 2x daily up and gave us a push into our profit zone.
- ARKK gave us a strong reversal yesterday.
- Home Depot hit new all-time highs as XHB continues to trade well.
As far as individual stock setups go, the market’s gap-up really makes things difficult because so many names are also gapping up. That puts many names above key rotation points.
As a result, I’m looking to trim into the opening gap up.
Not only has selling the gap-ups been the trend for several months now, but it’s the prudent thing to do after a strong Monday and an even stronger open. But from there, I’d like to buy the dip assuming the dip finds its footing.
Yes, that’s the SPY/ES and QQQ/NQ. But it’s also in the strong stocks.
In particular, I want to see if the high-quality high-growth stocks that are gapping up (TTD, ARKK, DOCN, AMD, NVDA, etc.) find their footing on a mild pullback. They have been beaten down so much, they should have some additional juice if we get moving.
Otherwise, I am watching the semi stocks, as well as Apple, Microsoft, and Alphabet, the three strongest FAANG stocks at the moment. Tesla gave us a great reversal trade yesterday and I’m watching that name as well today.
Macy’s is another name I’m watching, with a 3x daily-up level building at ~$28.15. I know Macy’s is not anyone’s go-to Alpha generator, but this stock was on fire and at $38 a few weeks ago.
Firming up around the 50-day and it could have some gas if it can clear $28.15 and the 10-day.
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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