Our View
Here’s the trade.
Today is Opex day, where the August options expiration will create price swings in the indices and individual stocks. As of 7:30 ET, the Nasdaq and S&P 500 futures are down about 1%. From Bloomberg:
“Nearly $2 trillion of options are about to expire, forcing holders to roll over existing positions or start new ones. The monthly event includes $975 billion in S&P 500-linked contracts and $430 billion in individual stock derivatives scheduled to expire, according to estimates by Goldman Sachs Group Inc. strategist Rocky Fishman.”
“Traders will try to push the S&P 500 towards 4,300 to make their options contracts worthwhile, according to Brent Kochuba, founder of analytics service SpotGamma. Any failure to reach this threshold would suggest that the latest rally is running out of steam, which could invite sellers…‘Everyone is on the ‘call side’ of the ship,’ Kochuba said.”
It’s Opex, so there will be plenty of seemingly random, choppy swings. If it’s chopping you up, lower your position size and only focus on the best setups. Otherwise, let’s see if this dip develops into something more or is just a small pullback.
Our Lean
For now, the bulls remain in control. While that could change at any minute, we are proceeding as if this is the case until it changes. I am looking at several dip-buying areas of interest.
The first is the 10-day moving average. As you’ll see in the Technical section below, the 10-day has been active support for a month now. If that changes today, then so be it. But we are betting on the trend until it fails.
If it fails, 4210 is the next level to watch, followed by the 4170s.
Daily Recap
The ES spiked to 4292.75 on Globex, pulled back roughly 15 points, and opened Thursday’s regular session at 4277.50. The futures rose a couple of points, then pulled back ~16 points down to the regular-session low of 4264.
That was followed by a ~27-point rally at 11:45, then a 23.25-point decline over the next hour. Bulls took control following that dip — which was a higher low — rallying the ES 28 points to a regular session high of 4295.50.
The ES traded 4291.25 as the 3:50 cash imbalance showed $1.48 billion for sale, as the ES dropped 9 points down to 4282.25, then popped almost 7 points in the final 60 seconds and closed at 4288.50. The ES ended higher by 9.75 points on the day, up 0.23%.
In the end, it was a choppy grind to the upside as Opex price action crept into the Thursday session. In terms of the ES’s overall tone, bulls bought the dip, but it was not convincing. In terms of the ES’s overall trade, volume was light at just 1.36 million.
- Daily Range: 37.5 points
- H: 4295.50
- L: 4258
Technical Edge
- NYSE Breadth: 53% Upside Volume
- NASDAQ Breadth: 57% Upside Volume
- VIX: ~$20.75
Game Plan: S&P, Nasdaq
I’m watching for some buy-the-dip setups we have outlined during the week. Including MCK, MSFT and CI.
That’s alongside the S&P 500.
Lastly, listen to what the market is telling us!
S&P 500 — ES
The 10-day has been active support and comes into play around 4235. That’s our first level of potential support after being rejected by the 200-day moving average.
So far, the action has been relatively healthy, but it’s Opex day, so let’s keep in mind that volatility can pick up here.
Below the 10-day, 4210 was a recent area of interest, followed by the 4170s and the rising 21-day moving average.
S&P 500 — SPY
Same setup in SPY. Watch the 10-day ema here for support.
As I mentioned the other day, I have a small short position in the SPY as a hedge against my current longs. I will look to cover that into this morning’s opening dip.
If we hold as support, look for a bounce from the 10-day. If not, $416 to $417 could be in play next week.
Nasdaq — NQ
The NQ leans a bit more precariously here, balancing on the two-day lows and the 10-day, as it sits on 13,385.
If it cannot hold, we could see a bit more pressure down to the 13,260 level — which is the 61.8% retracement from this week’s high to last week’s low.
For short-term traders, a move back over 13,385 could put 13,410 in play (yesterday’s low). Above that and more upside is possible on a short-term bounce.
TTD
Traders may have enough on their plate with our open trades and potential dip-buying opportunities in the S&P and individual stock trades.
However, I can’t help but look at TTD. If you’re not wanting to trade high-growth, no worries. Just take a pass on this one. But I’m looking to see how TTD handles the $67 to $68 area, which is the 10-day, 200-day, and post-earnings low.
If it finds its footing and bounces, don’t be afraid to book some quick gains and move to a B/E stop.
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.
Trade Sheets: We may “feel” a turning point in the portfolio if we get stopped on a bunch of our “stress free” trades — those with B/E or better stops.
We can close PEP, hit our final target on LNG and some are stopped out of O.
That leaves us with a half position in UUP, a ⅓ position in CHNG, a full position in BMRN, a ⅔ position in AR and a ½ position (initiated as such) in APLS. Here are the specifics:
- PEP — Let’s take all profits here and look for a reset to the Breakout Area ($177).
- UUP — Down to roughly ½ position in UUP against $27.95 stop-loss for aggressive traders, B/E for conservative traders.
- CHNG — second target of $25 hit. Now down to just ⅓ position. Take all profit here or move to a B/E stop and look for $25.50.
- O — Hit our second target at $75-plus. Now B/E stop or $72.75 for more conservative traders.
- LNG — going for $165+ on the last ⅓ position. Raise stops to $157.50
- BMRN — long from $94.14 (last week’s low). $96.50 to $97 is the first target. $100 is the second target. Initial stop-loss at $92.50
- APLS — HALF position at $65.
- AR — long from $40.60, price target hit $42. Next target is $44 to $44.50. Stops at B/E or $39.50 for more aggressive traders.
Relative strength leaders (List is cleaned up and shorter!) →
- CNC
- F
- HRB
- BMRN
- APLS
- ENPH
- TAN
- FSLR
- LNG
- PWR
- CHNG
- CELH
- COST
- PEP
- UNH
- XLU
- MCK — monster
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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