Globex
High 4345.50
Low 4309.00
Volume 246,000
Day Session
Open 4329.75?
High 4335.75
Low 4215.50
Close ???????????????????????????
Volume 1.84 million
Our View
Stocks Roll to New Lows as Russia Rolls In
I’m not really sure what to say other than the markets are in trouble. I have repeatedly said the big-picture price action is all about the failed rallies. I try my best not to get too far ahead of myself, but I think 4212 is key — the January low.
Once we start breaking down through that, the downside levels come quickly: 4180, 4140, then 4100.
It’s very possible the ES trades down 3850. The two-day Fed meeting in March is only 15 sessions away. Obviously, it’s going to be an important date for traders and my question is, does the market rally after the Fed raises interest rates? I think it’s a real possibility, but again I don’t think the rally will last. There are just too many rate hikes coming and we are only eight weeks into the year.
Our Lean
The ES is working on its fifth straight daily decline and it’s down almost 400 points from last week’s high. As a result, I can’t rule out some type of bounce.
The S&P is in wave 3, the toughest wave of all, and the Dow, S&P, and Nasdaq all have bearish momentum right now. Look at some of the individual stocks, too. Meta (FB) is down 40% in just a couple of weeks, while Spotify and PayPal are down almost 40% and 50% on the year, respectively.
We all knew the high-flying stocks were making highs on negative breath and many trading under their 50-day and 200-day moving averages in October and have only gotten worse since. Bret and I have talked about this numerous times over the last two months: What happens to these stocks when the market rolls over? We’re about to find out.
I think it’s very clear what we are seeing. The ES is in a downtrend and nothing is going to change that. I know some good friends that are down 30% to 40% in their stock accounts from the December highs and it doesn’t make me happy. It’s easy to jump on the hot stock bandwagon when things are going well, but it’s way harder getting out when it turns south. They made a lot of money over the last few years, but with inflation jumping to a 40-year high and with rates going up, it has changed the mechanics of the easy-money trade.
Daily Recap
The ES opened Wednesday’s regular session at 4329.75, made a high at ~4336, and dropped almost 40 points down to ~4297 at 10:09. It was able to rally back up to 4306.50 before dropping another ~25 handles down to a new daily low at 4280.75 at 10:31. After the low, the ES rallied back up to 4297.75, sold back down to 4282.50, and then dropped down to new lows at 4268.25 at 11:09, 68 points off the high of the day.
This is where the big rips and dips become apparent, because the ES then rallied about 40 points up to 4305.50 at 12:31, then reversed more than 50 points down to 4253 at 1:36. The ES hit a new low at 4332.75 at 3:43, short-covered up to the 4244 level, and traded 4220 as the 3:50 cash imbalance showed $4 billion to sell. That forced the ES down to the session low at 4216.25 before it bounced and traded 4223 on the 4:00 cash close, before settling at 4215 on the 5:00 futures close.
In the End
After a one-day rally — if we can even call it that — the ES tumbled lower and had a trading range of 133 points. In terms of the ES’s overall tone, it was bad!! In terms of the day’s overall trade, volume was lower than Tuesday at 1.84 million contracts traded.
Technical Edge
- NYSE Breadth: 73% Downside Volume
- NASDAQ Breadth: 78% Downside Volume
Just two days ago, we discussed the possibility of a sub-4000 trade on the S&P. Specifically, the discussion centered around being in an “ABC” correction and failing to hold the January low near 4212 could “put the 3,980 area in play.”
With this morning’s selloff, we’re about 125 handles away from that level in the ES futures, or only about 3%.
Unfortunately, this is the type of action that’s needed to eventually get to a bottom. We need the VIX to rip — which it is, trading $37 or so as of this morning — a larger dip in equities, and for god’s sake, we need some panic in the market.
Yesterday’s downside breadth didn’t crack 80% and sentiment is remaining stubbornly elevated. We’re finally starting to see some fear now with yesterday’s action. Today’s open should add to it.
Game Plan
I hate saying stuff like that because I’m a natural-born bull and an optimist, but it’s just reality and as traders, the reality is all that really matters. Embrace reality, don’t hide from it. Because the market won’t care what you do and if you hide, it will only hurt yourself.
As traders, we need to know when to shift gears and when and refocus on different parts of the market. While we’ve talked about the possibility of retesting the Q4 lows — and we’re now below them this morning — I do wish I turned bearish earlier.
That said, we have at least navigated the indices pretty well these first few months of the year.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
We do have some bullish divergence on the RSI, but without a reversal or rotation, it’s meaningless. The tough part now is, where is the C-leg low?
4000 has an obvious draw to it, should 4,100 give out later today or tomorrow. But if 4000 fails to hold, I can’t help but keep the 3980 zone circled on my charts. If we get there, the ES will be down 17% from the highs.
This would also be where the 21-month moving average comes into play.
The upside levels are:
- 4163 — the 50% retracement of this morning’s move and 4H doji high
- 4177.50 — the 61.8% retracement
- 4212 — the January low
Downside levels of interest:
- 4120 — see how it hold
- 4100
- Whatever the Globex low turns out to be ahead of the open. See how the ES reacts to that level during regular trading hours (RTH)
Gold — GC
Gold is ripping on the day, however, it’s running into resistance near $1961. This level has been difficult in the past. If it can break out over this mark, $2000 is in play, then potentially the highs at $2089.
If it dips, bulls want to see $1919 hold as support, but they need $1880 to hold.
Individual Stocks & Go-To Watchlist
I’m keeping the watchlist up, but not building any trades off it today. Like I said up top, there are days to say it’s not a good environment — or what I call “no-trade days.”
That’s just my personal plan. The volatility is simply too high and if I do trade today, it will be on the indices via SPY or QQQ, or index futures.
*Feel free to build your own trades off these relative strength leaders*
Go-To Watch List:
- TU
- CCK
- COOP
- MAT
- Gold
- ABBV
- KO
- MET, TD
- Energy — HAL, OXY, SLB, etc.
- BRK.B
- H and MAR
- PM
- MAT
- V & MA
- MKC
- TECK
- UPST — one of the few growth stocks actually working
Economic Outlook
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