Will Powell help them or push them further over the edge?
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Our View
I was talking to the PitBull yesterday, just before the ES futures sold off, and I told him, “how do we know that 3973 isn’t the high of this move?”
We don’t know, but like many times after the ES rallies, everyone starts talking about higher prices after it’s already made a big move and it fails. Additionally, I think there was some pre-Fed and pre-CPI selling.
Just yesterday, it looked like the opposite — buy the rumor, sell the news — but after Daly’s comments from the Fed, the mood on Wall Street shifted and the market remains in a cautious state.
Yesterday’s action wasn’t very promising. This is from my friend Jeff, who runs the Trader’s Alamanac:
Even though S&P 500 finished today with a fractional decline, our First Five Day (FFD) early warning system is positive. Over the first five trading days, S&P 500 gained 1.4%.
Last week our Santa Claus Rally was also positive, and with today’s positive FFD reading, there are two possible outcomes remaining for our January Indicator Trifecta. Our January Barometer can either be positive or negative.
For a reminder, the First Five Days (FFD) is just that, the first five days of the year. The Santa Claus Rally is the last five days of December and the first two sessions of January. The January barometer is the month of January. The “Indicator Trifecta” refers to all three measures.
2 out of the 3 are now positive, leaving just the month of January left. Regardless, the results are pretty promising.
In years where the S&P ends higher in all three readings, the market has rallied 90% of the time, sporting at 28-3 record with an average gain of 17.5%. In years where the FFD and SCR are positive but the S&P ends lower in January, the index is still 9-3 those years, good for a win-rate of 75%, although with an average gain of just 6%.
Our Lean — Danny’s Take
There is a lot of talk about a possible turning point this week. Powell speaks today and the CPI number comes out on Thursday. I think part of yesterday’s selloff was pre-selling for both events.
Our Lean: Sell the rallies for the next few days. I don’t want to go overboard, but a larger pullback ‘could’ be in the making. 3920 to 3929 remains critical for the bulls to regain. If they can’t, stay defensive.
MiM and Daily Recap
The ES traded up to 3941.25 on Globex and opened Monday’s regular session at 3925. After the open, the ES traded up to 3944, pulled back down to 3928.50, and ripped up to 3947.25 as the NQ RIPPED higher. At 11:17 the ES traded 3973.25, the high of the day. The ES was up 1.38% and the NQ was up 2.35%, but then it came tumbling down.
The ES fell 39 points to 3934.25, with the S&P finding its footing for more than half an hour between 1:30 and 2:00. But then it broke that low and the selling continued. The ES traded 3914.50 as the 3:50 cash imbalance showed $264 million to sell, rallied up to 3919.75, and traded 3914 on the 4:00 cash close. After 4:00, the ES sold off down to 3909.75 and settled at 3913.50 on the 5:00 futures close, down 2 points overall, but down about 60 points from the high.
In the end, there were some very powerful Nasdaq buy programs early and then the sell programs hit even harder. In terms of the ES’s overall tone, the ES was firm in the first part of the session and weak in the second half. In terms of the ES’s overall trade, volume was in line with what we have been seeing so far this year, with 1.649 million contracts trading.
Technical Edge
- NYSE Breadth: 63% Upside Volume
- Advance/Decline: 61% Advance
- VIX: ~$22
“Generally, I’m someone who would rather buy the pullbacks rather than the breakouts — especially in a bearish tape.”
After yesterday’s initial burst, I didn’t think that comment would be as prudent. We got off a couple of nice trims yesterday — in FSLR and DE — but COP is underwater and I tried buying the intraday dip as well on the 30-min timeframes and obviously that did not work.
Today could be a bit binary with Powell at 9. Let’s see what kind of tone he sets.
S&P 500 — ES
Man, what a rollercoaster yesterday’s action was. The bulls stomped on the gas pedal early, then faced a heavy fade and closed back below 3920 and last week’s high of ~3929.
So what now? We do what we said yesterday: Go level to level. On the downside, the plan was, “Below 3916-20 puts 3900 in play, then 3975 to 3980.”
We’re trading ~3900 now. If it can’t hold, 3975 to 3980 is on tap. Below that and my levels say 3960 and 3928-30.
For now, we remain “in the box” and we’re back in the 3800 to 3920 range. We’ll see if Powell can change that.
SPY
$390 is still the line in the sand for the SPY. Below that and it remains vulnerable.
$384 to $385 is key now. That’s the 50% retrace of the range and the 10-day moving average.
TSLA
TSLA’s first test of the declining 10-ema in ~20 sessions.
Aggressive bears could be short already. More conservative sellers will wait for the daily-down at ~$117. That puts the gap-fill in play at $114.40, then potentially $110 or lower.
On the upside, consider using yesterday’s high as a stop-loss.
Open Positions —
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
- TLT — Down to ⅓ after TLT’s strong push to $105 on Friday. Raising stops to $100 or $101 and (I personally) am just leaving a runner against the stop.
- Now you can handle this however you want. $106.31 is a gap fill, so is $108.16.
- DE — “$430 to $435 is our next trim zone, so let’s just call it the 21-day sma at ~432.50.” We got our second target Monday,
- B/E Stop. Conservative bulls can move stop up if they want to lock in gains in the event of a larger fade.
- /NG (can use UNG too) — Went for a ¼ trim at $3.90 but was “ideally looking for $4+.” Down to ⅓ or ½ here, your preference.
- Now certainly a B/E stop. $4.20 to $4.25 is the next trim spot
- COP — Long from $119, the 2x weekly-up. $124 to $127 could be a reasonable trim spot. (Keep in mind, the 50-day is at ~$122, so maybe ⅕ to ¼ trim there just for lunch money).
- Stop-loss is key here. $114- $115 is a reasonable stop on the downside. Maybe consider getting down to a ½ position if we get back to our basis. I don’t normally like to do that, but yesterday’s action was tricky.
- FSLR — ½ position — long at $157.75 — trimmed ⅓ at $162 as per plan.
- $165 to $167 is next trim zone. Conservative bulls have a ⅓ trim in their pocket, so a B/E stop is fine. Aggressive bulls can use yesterday’s low of ~$155.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- SBUX — nicely weekly-up setup after 10-week ema reset.
- DE —
- SMCI —
- TJX, ULTA — looking for pullback here to active support (10-day) given the bearish update from LULU.
- CAT
- MRK
- CAH
- BRK.B
- LNG
- LMT, RTX, NOC — RTX best of the bunch
- MET — weekly
- GIS
- HON — weekly
- FSLR — $140 is the 21-week sma and retest of prior resistance
- XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)
Economic Calendar — The Week Ahead
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