Our View
You won’t hear this in the Wall Street Journal, CNBC, Yahoo Finance, Bloomberg, or for that matter, any financial periodicals. They will just say the S&P recovered after the sanctions, but in reality, the NQ and ES rallied so much because of a handful of factors.
First, the ES dropped down to the Globex low near 4100, then rallied up to the 4164 level at 4:00 am, and then the ES dropped ~60 points down to a higher low at 4103. The amount of volume that was churning during that time frame was way above normal, almost 3x. In fact, the ES traded over 850,000 contracts in the overnight session ahead of the 9:30 open. That’s volume from an entire day sometimes in the summer.
On the second flush to the downside, the selling had exhausted itself. Combined with the news, the indices were running all the stops. The other part is the ES sold off almost 400 points from peak to trough in just five days. It went down too fast, plain and simple.
Further, yesterday was T+2 for the month of February, so the big funds were marking up stocks (AARK was up 7.8%). Lastly — and by no means the least important — is it was another Thursday low.
Our Lean
Let’s keep it short and simple, but it depends on what the big money wants to do today. The question is, do they continue to mark stocks up on (T+1) or do they pull back after a high volume, 190-point rip?
Our lean is to buy the early dips and sell the rallies with the 4400 area being a possible top and 4440 as an extreme. And remember, the news will play a role, as they algos feast on the headlines.
Daily Recap
What a wild day it was. The ES fell down toward 4100 and double-bottomed at this level in the premarket. In both Our Lean and the technical section below, we noted how important 4100 was. When 9:30 came around, it opened near 4112 and it was off to the races.
The ES traded up to 4252.25 at 3:28, up 150 points off the low of the day as the early MiM showed $2 billion to sell. It dropped down to ~4232 briefly, then ripped to 4290 as the 3:50 cash imbalance showed $1.4 billion. The ES sold back down to 4275 and traded 4384 on the 4:00 cash close. After 4:00, the ES bounced around and finally settled at 4269.25 on the 5:00 futures close, up 54 points or 1.3% on the day.
However, off the low, the ES closed higher by more than 4% on the day.
In the end, it was a news overload that caught everyone too short. In terms of the ES’s overall tone, it was a big buy program led by the Nasdaq. In terms of the day’s overall trade, volume was HIGH, with 877,000 contracts on Globex and 1.967 million contracts traded on the day session for a total of 2.844 million futures traded.
Technical Edge
- NYSE Breadth: 52% Upside Volume
- NASDAQ Breadth: 78.9% Upside Volume
Tech was our leader yesterday, plain and simple. Yesterday I said my guess is that they will buy the open and look to sell it later. Only “later” never came as they couldn’t generate any meaningful strength on the downside.
At one point, the NQ futures were down 3.57%, rallied almost 1000 off the low, and closed higher by 3.4%. From the low, it rallied more than 7%.
Game Plan
Yesterday I wanted to stick with the indices as my main trading vehicle and I’m keen on doing it again today with the session’s gap up.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
The January low was the highest upside level I listed yesterday, more than 100 handles above where the S&P was trading at that time and I did not think we would need to map much higher for the levels yesterday. Well the market proved me wrong there!
The upside levels are:
- 4321 — last week’s low
- 4344 and 4401 — 50% and 61.8% retracement of the current move.
Downside levels of interest:
- 4290 — Thursday’s high
- 4227 — O/N low
- 4212 — January low
- 4196 — 50% retracement of Thursday’s range
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
The upside levels are:
- 14,143 — 50% retracement and the 10-day. Key area
- 14,367 — Q4 Low
- 14,406 to 14,420 — 61.8% retracement and declining 21-day
Downside levels of interest:
- 13,983 — Thursday’s high
- 13,760 — O/N low
- 13,706 — January low
Gold
That pullback in gold really felt good to nail yesterday, as it faded from resistance. So far, it’s holding exactly where it should: The 10-day moving average and the Q4 highs. In fact, yesterday’s low was within a dime of the latter.
Now we want to see it stabilize above the 10-day and then rotate higher. We’ll see if it needs more rest though.
Individual Stocks & Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Today is tough. If you are not long from yesterday in some capacity, it’s hard to buy today into a gap-up, as it leaves such a wide risk level.
I think the thing we need to look for is a big upside breadth day. If not today, sometime next week. We need the return of significant demand and institution support in the market.
Absent that, many of these rallies could turn out to be selling opportunities. As good as yesterday felt, the trend is still to the downside. Invert almost any stock’s chart and rather than a rally into resistance, it would look like a dip into support. That’s not constructive for bulls yet.
Go-To Watch List:
- TU
- COOP
- MAT
- ABBV
- Gold
- CCK
- KO
- BRK.B
- H and MAR
- MAT
- V & MA
- MKC
- TECK
- UPST — one of the few growth stocks actually working
Economic Outlook
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