Our View
This has turned into a “don’t get too bullish when the market rallies and don’t get too bearish when they sell off,” trading range.
It’s somewhat confusing and I wonder why the ES isn’t falling harder. That said, I think we are close to the top of the trading range and next week is the Fed’s two-day meeting where we will finally see the first rate hike in quite some time.
I hate to say it, but I still see no redeeming qualities in this rally. The Fed’s rate hikes are coming and Putin is out to totally destroy #Ukraine. I see a market waiting for the other shoe to drop.
Based on all that’s going on, I have one question to ask: Who wants to go home long over the weekend?
Misinformation and Market Disjointment
My calls are generally based on gap-up and gap-down opens. I believe the 10:00 readings are one of the best hints to the direction of the day. I don’t think the ES can rally too far with Putin encircling Kiev and Europe’s largest nuclear plant damaged. I think the battle for Kiev is going to get very bloody and a great loss of life.
My friend Kun from China told me that “Putin is going after the ‘nazis’ in Ukraine.” I definitely have insight into how the Chinese public thinks and told him — respectfully — that there are no nazis in Ukraine. He went on to say something about “China will not invade Taiwan” before the Olympics.
Obviously, Xi gave Putin the go ahead on Ukraine to test the water or he would have made a public statement condemning the violence.
I think my “disjointed” comment encoumpusses everything: Grains going limit up for days, oil at $114, rates/bonds moving big in both directions, VIX above $30, the S&P 500 down almost 15% at the lows.
Now Powell confirmed the coming rate hikes in two weeks. On the plus side, the market can begin to fully price that in before the event, but still, this feels like trying to trade on a mudslide: Nothing is stable at the moment and there is no sure footing.
I always think conflicts like Ukraine are very well planned out. Not just in the military and logistical sense, but the economic effect as well. They say Putin made Russia sanction-proof, but it sure doesn’t look that way with the ruble at less than $0.01 to the dollar. He still runs the country and the military, but he has made it impossible to invest in regardless of what the media says.
Jobs Friday
This morning is the Labor Department’s February jobs report. Economists surveyed expect growth of 440,000 jobs, and the unemployment rate to tick down to 3.9%. Hourly wages are projected to grow 5.8% year over year.
Our Lean
One side of me says buyers beware and the other says the dips are holding. So this is a tough market and don’t let anyone tell you otherwise.
My question is, why are the dips holding? Yes, some big-name stocks were beaten down far enough to buy, but there’s so much uncertainty. I still think we are a long way off from any major rally or new highs. It’s just too early in the year and too much for the markets to absorb.
If the ES gaps lower, my lean would be to buy the open or the first pullback under the gap-down open and sell the rallies. There is too much risk to be long over the weekend.
Daily Recap
The ES traded down to 4367 and rallied up to 4418.75 just after 9:00 and opened Thursday’s regular session 4408.50. The bulls tried, but the breakout over 4400 failed.
It quickly turned lower, with the ES falling to 4341 just after 11:00. From there it bounced, climbing back into the 4390 to 4400 resistance range we’ve been watching all week. Around 2:30 the bids fell out and the ES turned south again, falling 53 handles and bottoming at 4342.25 around 3:40. On the plus side, this was a higher low vs. the morning low.
The ES traded ~4350 as the 3:50 cash imbalance showed $2.4 billion to buy, traded up to 4361 and printed 4360.50 on the 4:00 cash close. The ES settled at 4365.25 on the 5:00 futures close, down 8.50 points or 0.2% on the day.
In the end, the ES reacts to any and all headlines. If it’s not a bad inflation headline, it’s Putin saying the war will continue until they have accomplished their goals. I said this a few times recently, but doesn’t everything feel so disjointed?
In terms of the ES’s overall tone, the late sell programs overshadowed the rally. In terms of the ES’s overall trade, volume was LOW at 1.51 million contracts traded.
- Total Range: 121 points
- H: 4399.25
- L: 4278.25
Technical Edge
- NYSE Breadth: 37.8% Upside Volume
- NASDAQ Breadth: 31.7% Upside Volume
Well, yesterday we said it would probably be tough to get another 80%+ upside day and that was the case on Thursday. Absent a return to demand, we must continue preparing for this environment to persist.
Sentiment continues to inch lower, but still remains above panic levels.
We don’t want to be full-time bearish and get short into the hole, just to get destroyed in a face-ripping rally. But as Danny said above, there are simply too many hurdles in the way for the S&P to enjoy a sustainable rally back to new highs.
Perhaps if there weren’t issues in Eastern Europe and the Fed undergoing a modest rate-hiking spree because the economy was strong rather than to fight inflation, we could look for a rebound higher.
Put it all together though and this remains a two-way market — and one that has been favoring the downside.
Game Plan
The game plan is simple: We’re going to keep going back to the well with the most water. In other words, we’re going to stick to what’s working: The S&P 500 and Gold.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
We have talked endlessly all week about the ES to the point where I’m afraid you all may be bored to death by it.
But here we are as the ES continues to stall at the 61.8% retracement just like in the prior leg.
It tried to breakout over this level yesterday, but failed and now we’re seeing if the dip can hold. I keep thinking 4,400 is a good place to reduce long exposure and/or hedge. From here, that remains the level to focus on.
***(For the levels below, simply move from one zone to the next & feel free to write them down. If we rally to 4,400, that’s the first upside level we’re watching. If the ES gets above and stays above it, the next “upside level” becomes our focus. In today’s case, that would be 4419)***
The upside levels are:
- ~4375 — Globex high
- 4400 — key zone (just see chart above)
- ~4419 — Thursday’s high
- 4450 and 200-day sma
Downside levels of interest:
- 4283.50 — Globex low
- 4260 — Q4 low
- 4251.50 — This week’s low
- 4212 — January low
Nasdaq — QQQ
- Feel free to extrapolate this layout to the NQ.
On Thursday, the QQQ opened near and faded from the key $350 level, which was the Q4 low, the declining 21-day moving average (which has been active resistance) and the 61.8% retracement of the current range.
Now we must see if ~$339 continues to hold, which is this week’s low.
The upside levels are:
- $348 — Recent resistance
- $350 — Key zone
- $354.50
Downside levels of interest:
- $348.90 — This week’s low
- $334.15
- $330.40
Gold
We have back-to-back inside days and now a rotation up through Thursday’s high. That said, it’s stalling near the $1950 area again.
If it holds $1944.50 and pushes ahead, $1961 resistance is in play, followed by $1975. Above $1980 and the talk will quickly shift to $2,000. On the downside, we need to continue seeing the 10-day ema hold as support.
Individual Stocks & Go-To Watchlist
XLE — gave a decent fade opportunity yesterday and today, that setup still exists. Look for rallies above $73.63 that can’t be sustained.
Bitcoin
If Bitcoin can hold $40,000, it’s hard not to think it can’t push back up to the $45,000 to $46,000 area. A break of $40K could put $37K back on the table.
Go-To Watch List: Boring Is Working + Energy & Defense
*Feel free to build your own trades off these relative strength leaders*
Take a few minutes and study this list. These are the leaders right now, those with relative strength. I wish it was loaded with tech and some of the fast-movers. It’s not, but all we can do is trade the hand we’re dealt or fold and wait for better cards.
- CHKP, UPST
- Boring but Good: BRK.B, KO, KHC
- ABBV, BMY
- ADM
- Defense — RTX, GD, LMT, NOC
- Energy — FCX, CNQ, CVX, ENB
- SYY — see if $86 holds
- TU — Longs can go for $26 // There now. All out & back on the go-to list.
- COOP — weekly up at $51.20.
- MAT
- Gold
- CCK
- TECK — Trim ⅓ at ~$39. Can go for $41 next, then $44.50
Economic Outlook
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