Our View
I am going to do a very abbreviated Opening Print this week. We all know what Mr Top Step has been looking for all month and with the exceptions of a few false starts, the S&P moved higher almost all day.
What else is there to say? We’ve been waiting patiently and now we’re capitalizing on our plan. That’s what it’s all about — waiting for your pitch and then taking a swing.
Our Lean
I am sticking with my long positions. @realTraderDave says he sees Wednesday as a pullback day and @Damian_197 is looking for weakness today. Hell, it should pull back after a five-day 5.8% rally.
That said, I’m still looking for ES 4800 to 4850 and I still think any pullbacks will be bought.
Daily Recap
The ES traded 4730 on the 9:30 ET futures open, ticked down half a point to 4729.50, and got hit by an all-day buy program. It traded 4776 at 2:44, up 63 points from the Globex low and up 60 points on the day.
From the 9:30 open, the ES rallied for ten straight 30-minute windows. With the exception of a few minor pullbacks, the futures went straight up.
As I explained in the MrTopStep chat, when you have natural cash buyers mixed in with covering shorts and buy stops, it’s impossible to fight. After dropping down to 4767, I put this in the MTS chat:
IMPRO: Dboy :(3:35:57 PM) : NHOTC day
IMPRO: Dboy :(3:36:11 PM) : NHOTC love holidays
When the MIM showed a small sale, the ES started going bid at 3:35, trading back up to the 4774 area and then up to 4781 after the MIM came out showing $1.32 billion to buy. On the 4:00 cash close, the ES traded 4782.75. After the 4:00 close, the ES climbed to 4784.25 and closed at 4782.25 on the 5:00 futures close, up about 66 points or 1.4% on the day.
In the End
In the end, you could see this coming. ES volume was only 580,000 at 1:20 pm and total volume on the Big Board was only 280 million shares.
In terms of the ES’s overall tone, it was very firm. In terms of the ES’s overall trade, volume was low at 852,300 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: 67.4% upside volume
- NASDAQ Breadth: 54% upside volume
Breadth was surprisingly low for yesterday’s robust rally and we’re now getting into one of those areas where the market is too high to buy but too strong to short.
In those scenarios, there are only one of two things to do. One is to ride existing longs if you have them. The other is trade with smaller size. In both cases though, it leaves us looking for a buyable dip.
The Game Plan
We are off to a great start for the week. Danny had investors looking for longs coming into the week and on Monday morning. Further, we had that killer rotation trade in AMD, which rallied 5.6% yesterday and is up another 1% in pre-market trading.
Like I said earlier this week, the newsletter will be intentionally light as we look to ride the last of our 2021 longs and recharge a bit going into the new year.
S&P 500 Futures
Danny said it a few weeks ago and it’s had me thinking: Where would the S&P 500 be without all the headlines?
The negative news earlier this month caused several false starts in the overall trend. But each dip found support and the S&P 500 is finally at new highs once again. I would love to see a dip to the 4740 to 4750 area hold as support for the ES futures.
Otherwise, I am keeping my longer-term focus on the 161.8% extension. An overshoot could put ES 5000 in play.
If 4740 fails as support, we’ll need to see the 50-day hold.
Nasdaq
As for the Nasdaq futures, let’s see if the NQ can get back to the prior high at 16,767.
After such a robust run, it makes you wonder if or when they will pull the rug. We’ll see how the overnight gains are handled after 9:30 and a day of rest would be normal after a strong rally on mild breadth.
But we’re also on a low volume, thin-to-win tape right now.
Keep in mind, Apple is nearing the $3 trillion market cap again. If bulls want to gun it to that level, it very well could take the NQ along for the ride.
Individual Stocks — TSLA and AVGO
Without sounding like a prick, we nailed yesterday’s trade in AMD and that has us riding into the week on a high note and in a position where we don’t have to get our hands too dirty.
Put another way, we have gains to keep rather than losses to makeup and that means we really can afford to watch pitch after pitch go by without swinging at anything but the best.
For many traders, hitting a one-day 5% trade that we can trim and trail is enough for a week like this to be a success. If that’s you, there’s no shame in enjoying the time between Christmas and New Years.
Tesla
From Tuesday’s low to yesterday’s high, Tesla has rallied 26%. It backed off the session high yesterday but is gapping up again this morning.
If Tesla opens above Monday’s high at $1,117, but trades back below this level, cash flow traders can look for a quick short with a stop just above the session high.
AVGO
Broadcom could be setting up in the same manner as Tesla.
An open above $676.40 that fails to hold this level could be a potential reversal candidate for some short-term cash flow.
I love these trades because the risk is clearly defined, as is the entry. And while I would love to buy this trending stock on a dip, the rally could be getting tired.
Again, you’ll notice today’s piece is a little light with just two low-risk setups that may not even come to fruition. That’s fine and we need some consolidation and resets anyway before re-committing capital.
Economic Outlook
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