Our View
I don’t think it’s fair to say the “last few days have been wild” because almost every day this year has been. It’s like one day we woke up and the 40 to 50 point trading ranges turned into 100 or 150.
I have known a guy that has been running a futures algo for the last 20 years. The system trades 6 to 8 markets at one time and he told me that whoever said the algo programs have been toned down due to the jump in volatility is 100% wrong. He went on to say his systems are up 35% more than they were this time last year and that it’s all volume-based.
They say you can fight the algo and HFT systems, but it’s impossible to some degree. They are responsible for over 75% of the daily volume — if not more — and constantly create false starts as the futures downtick, sell off 4 or 5 points, and then in 20 seconds rally 15 points straight up.
The tick system in the ES is gone. There is no more, “.25 bid at .50.” Instead, it’s “4350 at 4453” and even then you may not get a fill. If you put in a stop, it gets filled no matter how far away you put it. I use stops on 90% of my orders and I would say 80% of those get filled at a high or low. As the old MrTopStep saying goes…no stops go untouched in the S&P futures.
The moral of the story is that big ranges are great…if you’re on the right side of it. However, if you are getting whipped around, maybe it’s time to trade less and pick your spots better.
Our Lean
I had a few good trades yesterday, but I kept trying to sell and ended up down on the day. At one point I had over a 30-point winner and didn’t take it. Sell the early rallies and buy the pullbacks. It’s going to be whippy again like it was yesterday.
Daily Recap
The ES opened at 4327.50, made an early low at 4322, and then rallied ~29 points up to 4350.75. From there it dropped down to a higher low at 4333 and rallied back up to 4350.25 at 10:05.
The ES sold back off under the VWAP down to the 4319 area and then rallied back up to a new high at 4354.50, before pulling back to a higher low at 4336.50 at 10:31 and then rallied up to 4386.50 at 11:33. The ES traded up to 4394.50 at 1:34 — right into the range laid out in the “Technical Edge” section yesterday.
After a few small pullbacks, the ES dropped down to 4379.75 at 3:00 as the early MIM showed $267 million to sell. For the next 45 minutes the ES chopped around in a 7- to 9-point range and traded 4396 as the 3:50 cash imbalance flipped to $680 million to buy and closed at 4381 on the 4:00 cash close. It settled at 4373.25 on the 5:00 futures close, up 63.50 points or 1.47% on the day.
In the end, the markets were sloppy but firmed up after a headline hit saying that Russian negotiators were going to discuss a ceasefire at the next round of talks with Ukraine. In terms of the ES’s overall tone, it seemed to shake off the negatives and pushed higher. In terms of the ES’s overall trade, volume was lower from Tuesday’s 1.808 million to yesterday’s 1.657 million.
- Total Range: 121 points
- H: 4399.25
- L: 4278.25
Technical Edge
- NYSE Breadth: 80.3% Upside Volume (!)
- NASDAQ Breadth: 66.5% Upside Volume
We had an 80%+ upside breadth day in the NYSE yesterday. Another today would give us a back-to-back reading and could signal a return to demand. After chopping around in the 4275 to 4400 area, this would be a perfect time to unleash it.
That said, the market has made it hard to imagine we’ll get those types of breadth days multiple sessions in a row. Let’s see what today brings.
Game Plan
For as enormous as the ranges have been in the ES, it continues to trade very technically. Following the rallies to 4400, the pullbacks continue to get more and more shallow. Normally, that would have me looking for a breakout.
In this tape I have become leery of breakouts, though.
Look at the 30 minute chart above. The ES keeps hitting its head on last week’s high, the 61.8% retracement and the VWAP measure from the Jan. 24 low (the low that triggered the strong bounce in late January).
You’ll notice that the 200-sma and the VWAP measure from the Feb. 24 low have been support. Let’s zoom out and set the roadmap…
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
Yesterday’s Game Plan highlighted the 61.8% retracement prominently. As stops build at and above 4400, a break over this area — as well as the 21-day moving average — could put 4450 and the 200-day in play next. That’s followed by 4625 and the 50-day sma.
The upside levels are:
- 4400 — key
- 21-day sma at ~4413
- 4450 and 200-day sma
Downside levels of interest:
- 4465 to 4470 — O/N low and Globex support
- 4325 — 50% retracement of this week’s range
- 4306 — VWAP from the Feb. 24 low
- 4275 — two-day low
Russell 2000 — IWM
- Feel free to extrapolate this layout to the RTY.
The IWM has shown some leadership qualities lately, but it’s not out of the woods yet. If it can push up to the $207 to $209 level, it will face the Feb. high and the declining 50-day moving average.
Keep in mind that the 50-day has been resistance this year and has been in many growth stocks too. If the IWM can clear it and $210, that puts it back in the prior range and could lead to a larger upside run, perhaps to $220.
Downside levels of interest:
- $197.80 — This week’s low. A break could put $190 back in play.
Gold
We’re still waiting on a trigger for gold after an inside day yesterday. We’ve done well with this one, so let’s not force a trade on a suboptimal setup.
A rotation that sticks — like a 15-min close above our trigger level — over $1952 could get us to $1961, then $1975. But let’s see if gold actually needs a little more time to reset.
Individual Stocks & Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
SoFi gave us a great fade trade yesterday. Now I’m wondering about growth stocks and the market has me torn.
On the one hand, the S&P is trying to push higher over a significant area. On the other hand, ROKU, PINS, DKNG, SHOP and many others look like they want to roll over. In fact, they did yesterday before they were bid up off the lows.
If we rollover from this 4400 area in the S&P, these stocks may be the go-to intraday short spots. Just don’t get caught if they squeeze.
Energy
Many energy stocks look like the XLE above. Crude oil (CL) has been surging and just magnificent for those trading it on the long side.
However, the XLE is gapping up over yesterday’s high after a big three-day run. Again, this is the case for many oil stocks too. This could set up a bearish reversal. It’s looking extended and doing so on bearish divergence via the RSI.
If we gap above yesterday’s high (my preference) or otherwise push up through it at $73.50 and fade back below it, $73.50 could be our trigger with a stop just above whatever’s high of day ends up being (assuming it’s a reasonable R/R).
I am trying to keep to just one or two individual stock trades a day right now, because the volatility is so high. This is one I’m definitely watching though.
Go-To Watch List:
- CHKP, UPST
- KO
- ABBV
- BMY
- Defense — RTX, GD, LMT, NOC
- Energy — FCX, CNQ, CVX
- SYY
- TU — Longs can go for $26, the 261.8% extension
- COOP
- MAT
- Gold
- CCK
- BRK.B
- H and MAR
- TECK
Economic Outlook
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