T+2 In Effect as Quarter-End Nears

by Danny Riley
on June 29, 2023

The S&P has had a nice rebound, but is it about to run out?  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

T+2 In Effect as Quarter-End Nears

The S&P has had a nice rebound, but is it about to run out?

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Our View

I don’t know about you, but June seemed like a very long month to me. From Thursday June 1st low to the high on June 16th, the ES rallied 272 points. Then at the recent low (on Monday) the ES was down 125 points.

In other words, it’s very much holding the trading range. Like I have said many times, I am a cautious bull and I still think the real money trade is long.

According to the Stock Trader Almanac, July is the best month of the third quarter, “however the mostly negative results in August and September tend to make the comparison easy.”

The start of Q3 and the second half of the year brings in inflows from retirement funds. The first trading day of July has the Dow up 27 of the last 33 occasions and the ES up 29 of the last 33. Additionally, big July gains usually provide better buying opportunities over the next 4 months but — and there is always a but — it also starts the worst four months for the Nasdaq. Remember, the Nasdaq has been a major leader in the overall market rally this year.

Also remember that Monday is a shortened trading day because of the July 4th holiday.

Our Lean

Short and sweet today.

The ES rallied off of T+1 and today is T+2. Based on the way the ES ran up on the close it’s my guess we see higher prices. Buy the 1-0 and 20-point pullbacks. I think the ES is heading back up to the 4435-4443 level.

Above that zone and the 4467 level is in play. On the downside, keep an eye on 4415 and 4400.

MiM and Daily Recap

The ES sold off down to 4406.25 on Globex and opened Wednesday’s regular session at 4406. After the open, the ES traded down to 4399.25, back-and-filled for the next 30 minutes, traded up to 4420.50 at 10:52 and sold back down to the 4409.25 level. After that, the ES blasted up to 4430.25 at 12:20, then traded back down to 4400.75 at 12:55. As they say: Run the buy stops, then run the sell stops.

After the low, the ES rallied back up to 4415, pulled back to 4405.75, rallied up to 4416, traded back down to the 4401.50 level at 3:08, rallied back up to 4414 at 3:36 and then traded back up to the VWAP at 4412 at 3:45. The ES traded 4410.25 as the final 3:50 imbalance showed $2.4 billion to sell and traded all the way up to 4419.50 on the 4:00 cash close. After 4:00, the ES traded up to 4425.75 at 4:03 and settled at 4422.75 on the 5:00 futures close, down 1.25 points or about flat on the day.

In the end, the ES had a 31 point range up until the 4:00 cash close. In terms of the ES’s overall tone, it was ok but not great. In terms of the ES’s overall trade, volume was steady at 1.62 million contracts traded.

Technical Edge

  • NYSE Breadth: 56% Upside Volume

  • Advance/Decline: 55% Advance

  • VIX: ~$13.50

    • Traded a recent low of $12.73. That’s the lowest it’s traded since pre-pandemic in early 2020 (i.e. with stocks at ATHs)

SPY

Testing into the $437.50 area now, which has been resistance and is the 50% retracement.

SPY is trading near Wednesday’s HOD in the pre-market. An open near this mark and failure to hold it could create a quick cash-flow short. Otherwise, daily-up could open the door to $439.

That’s the gap-fill level and the 61.8% retracement.

  • Pivot: $437.50

  • Upside Levels: $439, $441, $443.50

  • Downside Levels: $434.50, $431.50, $429 to $430

S&P 500 — ES

The ES has rebounded into the 4430 region, which was resistance late last week and is the 50% retracement of the recent decline. Could be we looking at an “ABC” type correction?

If so, that would generally manifest with the rally running out steam between 4431 and 4446 (the 50% to 61.8% retracement) and then rolling over to at least retest the recent low near 4368 and potentially decline even more.

It’s one possibility. Otherwise, a sustained move above 4446 opens the door back up to 4467-75, then 4500.

  • Pivot: 4430 (y’day high and 50% retrace)

  • Upside Levels: 4445-4450, 4467-70

  • Downside levels: 4414, 4400, 4382, 4345-50

SPX

  • Upside Levels: 4390, 4400-4407, 4423-25

  • Downside Levels: 4355-60, 4328-35, 4300

NQ

Nice bounce of support as the NQ contends with recent resistance and the 61.8%.

  • Upside Levels: 15,225-250, 15,350

  • Downside Levels: 15,000-20, 14,920, ~14,830-850

QQQ

We can’t rule out a possible “ABC” pattern forming here, as we have a “tale of 61.8% retracements.” That’s as the QQQ retraced the 61.8% of the rally and yesterday retraced the 61.8% of the current decline.

A sustained move over $366.90 could put $370+ back in play. On the downside, see how the $360 area holds.

 

Open Positions

Bold are the trades with recent updates.

Italics show means the trade is closed.

Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.

** = previously mentioned trade setup we are stalking.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN and CVS.

Current: 4 longs, 2 shorts.

  1. PYPL — short from about $68 — trimmed at $67 and $66. Should be done to about ½ position with a break-even stop. $64 to $65 is the next trim spot.

    1. Down 5 of the last 6, but very measured. Can trim some if we take out Wednesday’s low ($65.62). Otherwise, wait for $64-$65.

  2. WMT — long from $154 — Trimmed ⅓ trim at $156 to $156.50,

    1. Trim more down to half at $156.35+, ideally $157+. Break-even stop

  3. FSLR — short from $189 — trimmed ⅓ or more (about 40%) at the $183.50 gap fill, traded sub-$177, so another trim down to roughly ⅓

    1. Can keep a break-even stop, but down to runners into Monday’s low made sense, as we did note we were looking to “save some” of the position in the event of a potential “puke” down to ~$175 (and it gave us sub-$177).

    2. Exit the rest or get down to runners if we retest Monday’s low.

  4. INTC — Long from $33.75-ish, added some at $32.10. We rarely add, but as mentioned on Friday, “In hindsight, ~$32 was a better buy spot than $33.50 to $34.”

    1. Cost basis: ~$33

    2. Got another excellent opportunity to trim INTC on Tuesday above our Cost Basis as it traded as high as $34.23.

    3. Stop at $31.75 hard. Can trim/exit on a push back to $34 and consider it a “kick save” on the position. Those who stick with it, $34.50 to $35 is the next profit target.

  5. AMD — long from ~$109, the gap-fill and 10-week ema.

    1. Adjustment. First trim spot is $112.50 to $113.50. If we get it, I’m moving to a B/E stop. The more aggressive move would be to keep a hard stop at $107.

    2. Next trim spot is $115 to $116.

  6. DOCN — ½ position* at $38.25 — Able to make small trim at $39.75 to $40 and/or hold for a push back toward the 10-ema and gap-fill level for a larger trim.

    1. Should be down to about a 60% position and this one really comes down to timeframe. Longer term trades (on the weekly chart) are fishing for $42.50 to $43.50, if not higher before their next trim.

    2. Daily chart traders are exiting more of DOCN at a faster rate as it pushes back into its short-term daily MAs (like the 10-day and 21-day).

      1. Both traders can utilize a Breakeven stop

Go-To Watchlist

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

Relative strength leaders → (List is growing long!)

  1. Growth stocks ARKK — DOCN, SOFI, UPST, SHOP

  2. LLY, CAH

  3. AI stocks — NVDA, AMD, AVGO, ADBE, SMCI

  4. Mega cap tech — MSFT, AAPL, META, CRM

  5. Select retail — CMG, ELF, LULU

  6. Homebuilders ITB — TOL, KBH, DHI

  7. BRK.B

  8. ABEV, DXCM (nice breakouts)

  9. Cruise stocks — RCL, CCL, NCLH

  10. DAL, DT, AMAT

Relative weakness leaders →

  1. PYPL

  2. MET

  3. CF, MOS

  4. PFE

  5. EL, FL, DG

Economic Calendar

 
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!
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