Danny’s View: S&P Gyrates Around Putin’s Playbook

Our View

Putin has taken over parts of Ukraine and his army has not fired a shot. This has been a very well-orchestrated and well-executed plan. Mass troops and high-tech military equipment are on the borders and they are operating on the premise of protecting the Russian speaking people in the separatist areas. Putin has totally out-smarted everyone and there was never going to be a meeting with Biden. It was all smoke and mirrors. 

All I can say is, there is only one other time that the S&P acted this bad and it was during the 2008 credit crisis. 

No matter how bad things get I am always looking for the silver lining, but in this situation, there are just too many negatives and too much debt. How much lower is the S&P going?  Last year the S&P gained 27% and at last night’s Globex low, the ES was down a little over 11% from the highs. 

My forecast was for a 15%-plus drop in the S&P this year and I still think we can get it. 

Our Lean

The ES opened the Globex session at 4266 and traded down to 4250 before bouncing hard. My gut feeling is that the ES has gone down too fast and that the balance of stops are on the upside. 

As I said a few days ago, there will be a rally after Russia invades and that’s what I think we could see. This selloff is not about Russia, it’s about inflation being at a 40-year high and rates are going up. The DAX sold off 970 points in two days and rallied back 457 points. Half way back — the 50% retracement is 485 points — and I have resistance at 14,820 to 14,830. 

I also think you sell rallies in CL (oil), buy dips in GC (gold) and that the DAX and CAC will be the weak link in Europe. 

Our Lean is to sell a 9:30 gap-up open or the first rally above the gap up. Then get a look at the price action and get a feel for the tape. Mainly, are they buying the dips or selling the rips?

Daily Recap

The ES opened at 4324.25 on Monday’s futures open, traded down to ~4313 and bounced hard, climbing to 4391 in the overnight session. At 9:30, the ES was back down to its original Globex open, trading 4323, with resistance at 4327.50 and support near 4310. 

Eventually the latter gave out, with the ES trading down to 4285 and closing the session at 4289.50.

In the end, it was another day of big rips and even larger dips. In terms of the ES’s overall tone, it acts terrible. In terms of the day’s overall trade, total volume was VERY low due to the abbreviated trading session, as only 425,000 contracts traded.

• Total Range: 141 points
• H: 4391.25
• L: 4250

Technical Edge

• NYSE Breadth: 68% Downside Volume 
• NASDAQ Breadth: 74% Downside Volume

There have essentially been two outlooks on the market.

The bull case hinges on the stock market putting in a low on Jan. 24 and bouncing and  putting in a higher low on the dip.

The bear case hinges on the stock market pulling back in a multi-leg correction. In an “ABC” or even an “ABCDE” correction, that includes the initial “A-leg” correction, followed by the bounce from the Jan. 24 low. That bounce becomes the “B-leg,” while the current dip is now likely turning into the “C-leg.” 

The question becomes, how deep is the “C-leg?” 

As Danny noted, the bulls are running out of positives to lean on while the case for the bears continues to get stronger. An “ABC” flat would mean we are near a low around the 4210 to 4250 area. Should that area fail though, a “true” ABC correction could put the 3,980 area in play. 

Game Plan

Take Note: we must trade the trend and right now, the trend is lower. In most stocks, the downside has been predominantly lower than what the indices reflect. Being a bull, I like to sniff out of the relative strength in stocks. 

For example, energy has been incredibly strong. But with the risk of rolling over looming in the broader market, taking long positions — even in the leaders — does have a growing risk. 

I must reiterate that smaller position sizes will do wonders for protecting your account and mental capital. Further, taking a pass on non-ideal setups will keep you fresh for when a more enticing environment is here. 

I wanted to do the charts last night, but given the overnight volatility, I’m glad we waited until the morning. The ES now has a 141-point weekend range, while the NQ has swung more than 570 points. 

S&P 500 — ES

• Feel free to extrapolate this layout to the SPY.

We have an overnight test of the key 4250 area. You’ll see on the chart how often it has bounced from this area over the last six months. In January, we hammered around this area for a few days before getting a significant bounce. 

Now we need to see: Will this area hold as support, and if so, how long do we need to trade here before getting a real bounce?

The upside levels are:

• 4343 – Friday’s close
• 4391 – Overnight high
• 4410 to 4417 declining 10-day moving average and 50% retracement

Downside levels of interest:

• 4321 – last week’s low
• 4250 – Overnight low
• 4212.75 – January Low

Nasdaq — NQ

• Feel free to extrapolate this layout to the QQQ.

The NQ traded my bread-and-butter setup, which is an undercut of the low and a hard bounce. In this case, it was last month’s low at 13,706. 

Upside Levels:

• 13,996 – Friday’s close
• 14,157 – Overnight high
• Declining 10-day
• 14367 – Q4 low

Downside Levels: 

• 13,906 – Last week’s low
• 13,896 – 50% retracement of current overnight/weekend session
• 13,706 – Jan. low
• 13,580 – overnight low

Individual Stocks & Go-To Watchlist

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

The specific setups I’m watching are numbered, while the non-numbered tickers are the stocks I am looking at for short-term opportunities with nothing specific in mind. 

Go-To Watch List: 

1. ABBV — Down to ⅓ of position. Stop raised to $142. Gapping down now, see if it reclaims 10-day and $143.37. 
2. MAR — watch for undercut of $174.72 area and tag of the 10-day for a possible bounce. (chart below) 
3. COST — Inside-and-up potential over $517.90. Weekly up close by at $518.21.
   1. If triggers, looking for the 50-day, then possibly $534. 
4. ABNB — Gap-down and hold of the 10-day and/or reclaim of Friday’s low at $173.62 could be a bullish reversal. Great EPS response. 
5. TU — Looking for a test of the rising 10-day and $24.75 area. 
6. CCK — Looking for a test $118.50 (recent resistance turned to support?) and a tag of the 10-day. 

• BROS 
• KO
• MAT
• MET, TD
• Energy — HAL, OXY, SLB, etc.  
• BRK.B
• H and MAR — Airlines looking better too
• PM 
• COOP
• TU
• MAT
• V & MA 
• MKC
• TECK
• UPST — one of the few growth stocks actually working

MAR

Looking for an undercut of Friday’s low and tag of the 10-day for a potential long setup. 

ARKK

ARKK is gapping down slightly in the pre-market. Could be a long setup here if it gaps below Friday’s low near $64 and reclaims it. 

The trade might last five minutes or it might last five hours. But these bullish reversals can give us a great risk/reward setup. 

For example, say ARKK gaps down below $64, bottoms at $64.55 and reclaims $64. We will be long near $64 with a ~50 cent stop loss. 

Economic Outlook

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.

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!