Our View
i don’t think this rally will last, but ride it if you are long. Clearly, the ES was oversold and the rally in the bonds has helped the stock market’s cause.
While the Stock Trader’s Almanac stats were bullish for the Dow this month (currently +1.4%), the S&P (-1.6%) and Nasdaq (-5.4%) have been the weak link. I expect that trend to continue right into the end of the month.
That doesn’t mean the ES can’t rally further, but I think it’s important not to forget the trend, which remains lower.
Our Lean
4508 is a critical level for the ES and a level I plan on exiting my longs. Right now the markets are holding, but my question is for how long?
The size of the trading ranges has shrunk and it looks like buying the 25- to 30-point pullbacks has been working. Sell the early rallies and buy the pullbacks with tight stops. If the ES does hold, there are the upside levels we are looking at 4,500, 4525, and 4,544.
Daily Recap
The ES opened at 4477.50, up about 37.50 points from the 4:00 close the prior day. The ES rallied 7 points to 4484.25, fell back below the Globex high at 4480.50, and ultimately fell 32 points down to 4452 at 10:00.
It was set to become a long and choppy session. For instance, the ES rallied ~30 points in the next hour and put in a lower high at 4481.75. Then it fell 25 points to 4457 at 12:20, putting in a higher low. Finally, one more 24-point rally to 4481 at 1:40 gave us another lower high before the pattern eventually broke.
That’s as the ES fell 37.50 points to a new session low at 4443.50 just before 3:00. After a bounce, the ES went into the 3:50 imbalance at 4468 — up 25 points from the recent low. When the MIM showed $1 billion for sale, the ES fell 15 points to 4453 and closed at 4456 at 4:00, down 3.75 points or 0.12%. At 5:00, it settled at 4469 after a solid post-earnings reaction from Tesla.
In the end, the ES opened firm and then flopped. In terms of the overall tone, it was a very choppy day contained within a tight range. In terms of the ES’s overall trade, volume was steady with 1.42 million contracts trading.
- Total Range: 51.50 points
- H: 4484.25
- L: 4432.75
Technical Edge
- NYSE Breadth: 58.8% Upside Volume
- NASDAQ Breadth: 40.5% Upside Volume
Yesterday’s action was tractionless in the overall indices, but it allowed us to achieve several price targets in our holdings below, namely TGT, ACB, and VRTX.
Hitting a series of price targets is always nice. There’s the obvious money-in-our-pocket part, but it allows us to reduce stress by moving to break-even stops and re-evaluate the market from a more fresh perspective.
Game Plan
Today we’re going to see how much strength the market really has. Specifically, can the S&P power through yesterday’s high and a key area?
Everyone wants to be excited and wants to see the rally hold in earnest. I think it’s important to remember that it’s a “prove-it” market for the bulls. They must prove they have momentum right now, because largely speaking, we’re still in a downtrend.
S&P 500 — ES and SPY
The ES has been frustrating traders yesterday and today — aka me — because it keeps making the moves we’re looking for but doing so during Globex.
Yesterday it approached the 4490 to 4500 zone we were looking for, then it faded. Now it’s pushing higher again but doing so during Globex.
Here’s what we’re looking for: I want to see how the ES handles yesterday’s high of 4484.25. Just above that is our 4490 to 4500 zone, which has the 200-day and 21-day moving averages, as well as the 50% retracement.
If the ES can power through this area, the 61.8% retracement is in play at 4425.
If the ES fades from here, the 10-day is first in line, followed by yesterday’s low at 4432.75. If we really roll over, 4426 and 4410 will be on my radar.
SPY
When laying out the ES, I often say, “feel free to extrapolate this chart to SPY” because look at how similar the two charts look. I know a lot of people don’t trade futures and instead stick to the SPY. That’s absolutely fine; I just don’t like to make the newsletter too long with too many charts — especially when the layout is virtually the same!
Look at today’s setup, for instance. In the ES, we’re looking to see if it can take out yesterday’s high. For the SPY, that’s $445.80.
If it can clear that (and it is in the pre-market) it opens the door to the $449 area, where it finds the 21-day and 200-day moving averages, as well as the 50% retracement.
Above that opens the door to the 61.8% at $452.
In other words, same setup, just different prices.
Bonds
I was talking with a member yesterday afternoon who took the bounce trade in TLT. He had already booked half the gains on the strong bounce and moved to a break-even stop-loss. Nice trade!
From here, keep an eye on that declining 10-day moving average. If we tag that measure this week, that would be a good place to trim more, if not outright reverse our position and try a potential short.
TSLA
Tesla is responding well to a decent EPS report last night. Given its $1T market cap, that’s good for the market.
This is less of a trade and more of a “keep an eye on it” note. Tesla is trading ~$1,035 in the pre-market now, just above the two-day high and the 21-day. The latter has been resistance lately.
A post-EPS fade from this gap-up would be a bad look for the stock. If that happens, keep an eye on $1000, then $975.
A sustained push above $1,035 likely opens the door up toward $1,085.
Individual Stocks
I’m pumping the brakes here for a day on new trade setups, as we hit several targets yesterday. If long, continue to manage these positions and recharge a bit!! Except for COP stock.
COP
This one has been a bit finicky. We are currently in a weekly-up state over $102.40, but not by much.
Let’s see if we can get an inside-daily-up rotation over $103.50 to fire today. If it rotates and holds above that level, perhaps we can get a push higher. Below $100 on the downside really derails COP in the short term.
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- COP — Triggered weekly-up at $102.50. → $107 is ideal first trim zone, but conservative bulls can do so closer to $105 if they prefer. → if you missed this the first time around, look for weekly-up again over $102.50.
- VRTX — First trim zone hit → Next trim spot at $291 to $292.50.
- PANW — Trimmed into weekly-up area near $631. Still looking for $645 to $655 on the upside against a B/E stop (near $598)
- TGT — $250 trim spot hit → A full exit is okay. Otherwise look for $265-ish on remaining ⅓ of position. Stop-loss either at B/E or raised to $235. Your preference.
- WMT — Trim at $158 → B/E Stop. Inside week. Now looking for inside-and-up rotation over $158.29. If so, it puts $162 in play for small trim, otherwise $165 to $170 is our longer term target.
- ABC — $166 Trim spot hit → $170 to $172 would be for the final tranche. Full exit is okay too. B/E stop is fine.
Relative strength leaders (List is getting longer!) →
- AR — watch for test of 10-day
- COST
- MAR — back on the list
- CAT
- DLTR
- MCK
- BRK.B
- XLB — ADM, MOS, NTR, CTVA, NEM — Keep an eye on this group in the coming days.
- ABBV
- FLR
- JNJ
- XLU
- BMY
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- PANW
- AMGN
- ABC
- UNH
- VRTX
Economic Calendar
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.
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