Our View
The summer trade may have come early this year, but that doesn’t mean the ES won’t be extremely volatile. While “thin to win” and “don’t fight the Fed” worked unbelievably well for buying the pullbacks when rates were at or near zero, that game is over.
With the Fed raising rates, “thin to win” may in fact be a very bad thing for the S&P.
The ranges are narrowing and the volumes are falling. What’s it mean? I think it means that people are starting to take time off for the summer. According to the Stock Trader’s Almanac, investors sell stocks to pay for vacations in the summer. I can say all the selling is tied to that, but I do think people have been selling stocks to raise cash so I guess it all falls in the same bucket.
Our Lean
Today, we will “roll” to the September contracts as the front month, as the June contracts are set to expire next Friday. That can add to today’s chop, which we may have gotten regardless because of tomorrow morning’s CPI report. Not to mention, it’s been a total chop-fest all month.
I for one am not bullish. I also think one bad headline and the ES could be down sharply in a matter of minutes. There are a ton of sell stops building up under 4070. I think if the futures were to break there, it could slide quickly down to 4020 then 3970. The other side of this is the ES is range-bound, so pick your poison.
I am trying very hard not to get caught being too bullish. I know there have been some decent long trades over the last few weeks, but the ES always ends up in the toilet.
Our lean: Maybe I’m wrong, but I think the markets act like shit. I am not sure how much of this still works but according to the PitBull, we are supposed to look for the Thursday/Friday low the week before the June Quad Witching options expiration. That’s today and tomorrow.
While that trade has treated us well, it conflicts with another one of our trading rules that say, the ES rallies early in the week and early in the day during a bear market. I can’t help but notice how weak the ES has been late in the week this year and all the late-day walk-aways.
All I know right now is we are stuck in a 100-point range that continues to cause both up and downside false starts.
Daily Recap
The ES opened Wednesday’s regular session at 4141 and quickly rallied up to the day’s high at 4160 and then dropped 25 points down to the 4135 level. After the drop, the ES slowly rallied, did several small back-and-fills, and traded back up to the high at 4160.
Then it dropped all the way down to a new low of 4105.50 at 2:30, down more than 50 handles. After the ES rallied back up to the 4127 level, a big wave of sell imbalances hit, pushing the ES back down to 4110.75 at 3:47 as the early MIM showed $280 million to sell.
The ES traded 4112.50 as the 3:50 cash imbalance showed $852 million to sell, traded 4115 on the 4:00 cash close, and settled at 4116.25 on the 5:00 futures close, down 44.5 points or -1% on the day.
In the end, the ES trade has turned into a big ‘water in the bathtub’ trade. The algo’s push the water one way, then they push it the other way. In terms of the ES’s overall tone, it was weak but not overly. In terms of the ES’s overall trade, volume was below the recent average, but the highest since June 1, at 1.66 million contracts.
- Daily Range: 54.75 points
- H: 4160
- L: 4105
Technical Edge
- NYSE Breadth: 33% Upside Volume
- NASDAQ Breadth: 48% Upside Volume
- VIX: ~$24
The ranges keep getting tighter. Every move lower looks like the S&P is going to crack and every rally looks like it’s setting up for the next leg higher. In reality, each one is a false start and we’re trapped in a tightening range.
The next 7 sessions are not set to get any easier and should create a bit of chaos. Chaos usually does not favor the bull case, but we will see how it shakes up. The schedule includes:
- June 9th is “roll day” for the futures, as we move to Sept. contracts from June.
- June 10th is the CPI report, which has become the most important economic data point for traders.
- June 14th is the PPI report.
- June 15th we have retail sales, but more importantly the FOMC release and likely a 50 bps rate hike (there is currently a 10% chance of a 75 bps hike).
- June 17th is quad-witch expiration.
Remember, there is absolutely zero shame in taking some or quite frankly, all of these days off and avoiding the mental hurdles this market has in store over the next week or so. Protecting capital and mental capital are our top priorities at this point.
Game Plan — S&P 500 (ES and SPY), Nasdaq (NQ and QQQ), ARKK, IBM
Yesterday was a tough trade. AAPL got going and gave us our first target and let us get out of the rest at break-even, but it was a “small potatoes” trade. Nvidia didn’t work.
It’s just a chop-fest out there.
S&P 500 — ES
The consolidation wears on, with the lows getting higher and the highs getting lower. It’s a classic wedge.
I’m not even so sure that daily-up over 4160 gets us much, as the ES has topped out in the 4160s in each of the last three sessions. If it clears 4170 — and thus this week’s high — we could see a push up to 4200, where there is plenty of potential resistance.
Above 4220 and the ES has some room to run.
This is important. On the downside, keep an eye on yesterday’s low and the Globex low, at 4105 and 4001.50. In between is the 10-day moving average. A break of 4000 puts this week’s low and last week’s low in play, between 4071 and 4076. A break of this area ushers in more downside for the S&P.
S&P 500 — SPY
A lot of this stuff has been, essentially, the same all week.
SPY needs to clear the three-day cluster of highs around $416.25 to put a weekly-up rotation in play near $417.50.
On the downside, use caution below yesterday’s low ($410.38) and the 10-day ema.
Nasdaq — NQ
12,750 has been resistance. Above that and 12,950 is possible — last week’s high.
On the downside, watch the Globex low at 12,566 and the 10-day. A break puts 12,440 in play (last week’s low).
Nasdaq — QQQ
It’s getting even tighter on the QQQ — which has the added mystique of the monthly VWAP measure. That was support in late April/early May and is been resistance now.
Daily-up over $311.72 puts this monthly VWAP measure back in play, along with last week’s high near $314.50.
On the downside, bulls gotta hold $303.50.
ARKK
Watching ARKK for sentiment more than anything. $46 is the rotation point.
A close above that and we could get a move to the $50 to $52 area. Below the 10-day and $42.50 is vulnerable.
Daily-up over $47 is short-term bullish.
IBM
Surprisingly one of the best-performing tech stocks, IBM is actually up about 5.5% YTD.
On a dip, let’s see if IBM holds the 10-day and $140 area. It could put $142 back in play, then the recent 52-week high up near $144.50.
Go-To Watchlist — Individual Stocks
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the ones I’m watching most closely.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
- AMD — Weekly-up at $104.55 triggered, First target achieved at $109.50. → Some stopped at B/E and that’s okay. Others are holding against $100. Back over $104.55 and bulls can look for the same first target as before: $109 to $110.
- DXY / UUP — Trimmed into $27.50 as the first target. Now looking for $27.70 to $27.75. This tends to be a slow mover and it one we can hold for a while as long as our risk level holds. c
- CTVA — triggered long. → For those that did not trim on the big-gap up in the pre-market, $62.50 to $63 is the first trim zone. $64 is the next spot.
- DLTR — Price Target 1 & 2 hit on the same day it triggered → Now look for $165 to $166 on remaining balance. B/E Stop.
- NEX — Trimmed at $12.50 — Now B/E stop for conservative traders or $11.50 for more aggressive longs. Daily-up opens up more targets.
Relative strength leaders (List is cleaned up and shorter!) →
- These are on watch for dip-buys:
- XLE
- AR
- XOM
- TECK
- DLTR
- IBM (of all names)
- DOW
- ARCH
- NVA
- XLU
- TMST
- VRTX — trying for weekly-up this a.m.
- AMGN
- MRK
- MCK
- BMY
Economic Calendar
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