Regional Bank Worries Persist, Weigh on S&P

CPI number is on tap tomorrow

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Our View

One day, we will break out of this range and get a better trading environment. One day, we’ll be back in a bull market buying the dips, riding the uptrend and watching our friends and families’ 401Ks go up.

I can hardly wait for that…but that’s not where we find today’s market.

If you sold yesterday’s open and bought the pullbacks like Our Lean, you did very well. Near the open, the SPDR S&P Regional Banking ETF (KRE) opened higher by more than 2.5%.

By the close, it was down 2% on the day and closed just off its session low. In that sense, the S&P did a pretty good pushing through the afternoon headwinds (albeit on low volume). The regional banks remain a worry and honestly, they should.

Have a look at how large some of the bank failures have been this year:

Our Lean

I think you have to go with the PitBull’s rule that says the ES tends to rally early in the week and early in the day. Meaning as the week rolls on, we should get a good look at the price action.

For me this is simple: The ES is trading in a 150-point range and what should change that? Tomorrow’s CPI number? Well, we can’t rule that out, but I keep seeing traders make the same mistake (and we keep harping about it in the OP). So I’m sorry if I sound like a broken record, but bulls need to stop buying the S&P at the top of the range and bears need to stop selling at the bottom of the range.

Until there is a real breakout and not some head-fake, it’s best to just continue to trade and keep the trading range in focus.

Our Lean: After rallying 101 points in two days, the ES is facing two potential problems: 1. It’s short-term overbought and 2. tomorrow’s CPI number. While we could see some downside today, our overall lean remains the same — Sell the early rallies and buy the pullbacks.

The 50% retracement of the move comes in at ~4113. Below that and I am watching 4095 to 4100, then the big support area near 4075. On the upside, watch 4165-ish if we clear and hold above yesterday’s high. Then 4175 and 4200.

MiM and Daily Recap

The ES traded up to 4161 on Globex and opened Monday’s regular session at 4154.75. After the open, the ES made a high at 4156.25 and sold off down to 4146.50 at 10:39, rallied up to 4153.25 just after 11:00 and 4152.50 just after noon. The ES slowly chopped around in a tight point range until 2:04 when it rallied up to 4154.75 and then dropped down to 4137.50 at 2:08 and then rallied up to 4157.50 at 3:01.

The ES pulled back to just below the VWAP at the 4149.25 as the early imbalance showed $142 million to buy and traded 4154.75 at 3:42. It traded 4155.25 as the 3:50 cash imbalance showed $395 million to sell, trading 4153.25 on the 4:00 close and settled at 4151 on the 5:00 futures close, up 2.50 points or just above flat on the day.

In the end, Mondays are the ‘slowest’ trading day of the week and yesterday fit the pattern. In terms of the ES’s overall tone, there was some kind of buy-S&P/sell-Nasdaq rotation. In terms of the ES’s overall trade, volume was low at 999.27K contracts traded, the lowest volume regular session of the year.

Technical Edge

Yesterday was a flat, low-volume, traction-less kind of session. We didn’t get many setups out of our individual stock trades (that’s okay), while the ES is leaning on an inside-and-down daily rotation as it flirts with Monday’s low of 4137.50 ahead of the open.

Tomorrow’s CPI number should rattle the cage a bit. Soft numbers may have the market truly believing the rate hikes are down. Hot numbers are going to cause some issues (as Fed will be in a tough spot with its rate hikes and as the regional banking system is stressed).

S&P 500 — ES

The big range remains 4200 on the upside and 4075 on the downside.

SPY

Inside day yesterday. Daily down occurs below $411.28. That’s also the 10-day and 21-day moving averages, so keep an eye on this area. If we open at or below this area, cash-flow bulls will use Monday’s as their active pivot.

Meaning, below this level and failure to regain it equals a short, while an open below/move below $411.28 and then back above it will equal a long position with a stop just below the session low. That’s trading for cash flow.

Keep an eye on the KRE for potential direction today.

SPX

QQQ

No changes.

NQ

Still stuck between 12,950 and 13,300.

FTNT

A recent Relative Strength name that lost its way. A possible short trade is here if FTNT trades below $64.50. Careful on entry, as we could easily dip below and reverse higher. That’s why I like to use 15 or 30 minute closes below key levels to make sure it’s not just an “empty out.”

Admittedly, that can cause you to miss some setups, though.

In any regard, I’m watching for a short setup in FTNT below $64.50 (daily down). Stop would be just above yesterday’s high of ~$66.50. First target near $63.50, down to ½ position at $62.50.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B

If following these setups, can consider going ½ size on any or all of them, given binary situation of CPI on Wednesday pre-open.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!