Fed’s Two-Day Meeting Begins. NVDA Trade Sets Up

by Danny Riley
on July 25, 2023

Big tech earnings on tap.  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Fed’s Two-Day Meeting Begins. NVDA Trade Sets Up

Big tech earnings on tap.

fb
 
tw
 
in
 
email

Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.

 

Our View

There were several great traders that used my desk and Bruce Kovner from Caxton was a very smart guy. The thing I liked about him (early on) was that when his people put in orders at the desk, he would always have them ask if the locals were long or short and what the retail accounts were doing.

He also used to talk about the retail accounts and one thing that he said was spot on: “My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks. The emotional burden of trading is substantial; on any given day, I could lose millions of dollars.”

I hate to admit this, but I am one of those people and the funny thing about it is, if I just do 1 or 2 ES or NQ — or even both at the same time — I’m fine, but once I’m trading 8-10 contracts or more, it becomes too much. A 5% to 10% account swing takes a toll, mentally.

I think the key to this is knowing what you want to risk before you make the trade and there has to be some type of risk/reward ratio in mind. I like 3-to-1 under the right set ups; if I risk 5 points, I want to make 15+ or if I risk 10 points I’m trying to make 30+.

In my case, it’s ideal to always do 2 contracts, so if it does go my way I can get out of one and keep a runner.

Our Lean

In addition to the Dow closing higher for 11 days in a row — its best run in six years — today is day one of the Fed’s two-day meeting. The question isn’t if the Fed is going to raise rates today, it’s if they hike again in September. Currently, the expectation is that the Fed hikes this week, then is “on pause” for September. We’ll see if those odds change after Powell’s press conference tomorrow afternoon.

Our Lean: I think the ES and NQ are not done going up. That doesn’t mean you can’t sell the occasional rip, but for the most part, we remain firmly planted in the idea of buying the pullbacks. If the S&P is going to sell off, it likely won’t be until tomorrow.

I still see strong support at the 4551 level, but there’s also support above that level at ~4560. On the upside, keep an eye on the 4592-95 zone, then 4598-4600 and finally a retest of the highs at 4609.

Morgan Stanley Chief US Equity Strategist Mike Wilson highlights that EPS and revenue beat rates for 2Q have been better than average, but forward-looking earnings revisions breadth has rolled over once again, falling at the most significant rate of change since late last year. On average, he notes that price reactions post reporting have been muted (down just over 1%; more than double the decline last quarter). As investors head into the bulk of earnings season over the coming weeks, Mike expects performance dispersion to rise and he recommends investors look for stock ideas with the following attributes: high earnings quality, strong free cash flow generation and improving earnings revisions driven by sales growth. On investor positioning and sentiment gauges, Mike adds that most measures appear elevated versus an 18-month look-back, but are not extreme in a more elongated historical context.

While Wilson remains pessimistic on 2023 earnings, he says “we were wrong” about the pessimism he has carried for this year. “On Monday [he] conceded that he stuck with the pessimism for too long amid a rebound that has left equity benchmarks within spitting distance of erasing last year’s decline. His forecast for the S&P 500 remains 3,900.”

MiM and Daily Recap

The ES traded up to 4577 on Globex and opened Monday’s regular session at 4575.25. After the open, the ES traded quickly made three separate new highs at 4583.25 at 9:32, 4585.50 at 9:37 and 4586.50 at 9:43 and then a tape bomb went off at 9:45: (US) JULY PRELIMINARY S&P MANUFACTURING PMI: 49.0 V 46.2E (3rd month of contraction, but highest since Apr 2023). Services PMI: 52.4 v 54.0e (6th month of expansion but lowest since February).

The ES sold off down to new lows at 4568.75 at 9:56 and then stutter-stepped up to 4575.25, traded 4570.50 and popped up to 4583 at 10:17, down-ticked a few points then made a new high at 4584.25 at 10:33. From there, it back-and-filled in a 5-point range and made another new high at 4585.25 at 11:01 and three more high at 4587.50, 4588.25 and 4588.75 at 12:18. After a 7-point drop down to 4581.75 at 1:12, the ES rallied up to a new high above last Friday’s high at 4592.50 at 2:07 and then dropped down a few ticks above the VWAP at 4580 at 2:49.

As you can see, it was one new high after another. After the pullback, the ES traded to 4586.25 at 3:04 and I posted that I thought the markets acted funny and then the ES dropped down to 4576 at 3:30. The ES traded 4581.75 as the 3:50 imbalance showed $481 million to sell and traded 4584.75 on the 4:00 cash close. After 4:00, the ES drifted up to 4586.75 and settled at 4585.50, up 20.75 points or 0.45%.

In the end, the markets rallied most of the day but got weak late. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was low: 174k ES traded on Globex and 983k traded on the day session for a total of 1.156 million contracts traded.

Technical Edge

  • NYSE Breadth: 70% Upside Volume

  • Advance/Decline: 59% Advance

  • VIX: ~$14

SPY

Tried to go inside-day-and-up yesterday, and technically did so, but no in convincing fashion. With fireworks on tap tonight (MSFT and GOOGL) and tomorrow (the Fed), let’s see how the SPY does ahead of the events.

I’m watching daily-up over ~$455. Above $455.40 (the 78.6%) and a push to the $456 to $456.50 resistance zone is in play.

  • Upside Levels: $455 to $455.35, $456 to $456.50, $459

  • Downside Levels: $452.75, $451.50, ~$450 + 10-day ema

S&P 500 — ES Futures

If you look at a daily chart (not below), the 4592-95 has been a ceiling for the ES lately as buy-stops continue to build above it.

You can see how a push through this zone gets us 4598. Over 4600 and the highs at 4609 are in play. On the downside, bulls don’t want to lose 4576, otherwise putting 4569, then 4560 in play.

  • Upside Levels: 4592-95, 4598-4600, 4610

  • Downside levels: 4576, 4560 & 10-day ema, 4550

SPX

  • Upside Levels: 4567.50, 4578-80, 4595-4600

  • Downside Levels: 4540, 4527.50, 4505-10

NQ

Daily-up could put the 15,750 to 15,840 area in play. But NQ needs to clear and gain traction over ~15,620.

On the downside, an undercut of yesterday’s low at 15,483 could give us that test of the breakout level (15,440) and the 21-day moving average.

QQQ

Watching for Daily-up over $377.60.

  • Pivot: $377.60

  • Upside levels: $380, $381, $382.75+

  • Downside levels: $374.25, $371.75 to $372.75

NVDA

If NVDA goes daily-up over $451, bulls can consider a short-term long with $460 and $465 as the first upside objectives and $439 as the initial stop-loss.

Size accordingly, with big tech in focus after the close.

 

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.

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

  1. DOCN — Long from $38.25 — Small trim at $39.75 to $40 and a second trim above $40.75. Trimmed more between $45 and $47 and down to ⅓ at $49.50+

    1. Should have us down to a ⅓ position. I think we may be able to get $53+ out of this.

  2. JPM — Retested the breakout zone and long. This is a longer term swing. Many are long from $143-145. Trimmed $153s, then $157.50+ on 7/24.

    1. Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+

  3. ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52

    1. Adding back what we trimmed if we see $45 to $46

  4. HSY — Longer-term swing. Want to see this one hold $236-37. “Minor” ~⅕ trim was at $237.50 to $239.

  5. DAL — long from $47.20 (daily-up) and trimmed at $48. Trimmed down to ½ at ~$48.50. $49 is technically the next trim spot, but aggressive bulls can just go for the post-earnings highs near $49.80.

    1. Break-even stop

  6. SBUX — Either long from ~$101.42 or waiting for $102.50+ (the monthly-up rotation). If long currently, $99 to $99.50 looks like a low-risk way to proceed and $103 seems like a reasonable ¼ trim for those already long.

    1. $103+ trimmed for those long from $101.42-ish. Looking for $105 to $105.50+ for next trim

  7. DIA — long from ~$346.75. ¼ trim near $350, another ⅓ trim at $351.50. Down to 40% position at $354+ and break-even stop.

  8. YM — long from ~34,900 and ⅓ trim at 35,225 (+325). Second trim at 35,417+ (+517) and finally, small trim at 35,500 (+600). Down to ¼ to ⅓ after another 35,500+ trim.

    1. Let’s get down to runners here, above 35,600. (+700)

      1. While I do think the YM can keep going, it’s on a 11-day win streak, so better to be prudent and take the gains, then look to re-establish a long, IMO.

  9. WMT — went weekly-up from this week’s play — Trimmed above $157.55 and then $158. Probably has many down to ½ or ⅔ of position as we’re still fishin for $160+

    1. Set to open around $160.75. Let’s trim down about a ⅓ to 40% position here. Excellent rotation trade!

Go-To Watchlist

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

Relative strength leaders →

(Lack of updates here but these names remain my top focus list!)

  1. Growth stocks ARKK — DKNG, DOCN, 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, COST

  6. Homebuilders ITB — TOL, KBH, DHI

  7. BRK.B

  8. ABEV, DXCM

  9. Cruise stocks — RCL, CCL, NCLH

  10. DAL, DT, AMAT

Relative weakness leaders →

  1. DIS → new 52-week lows

  2. CF, MOS

  3. PFE (all vaccine gains now gone)

  4. 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!
tw
yt
 

Update your email preferences or unsubscribe here

© The Opening Print

228 Park Ave S, #29976, New York, New York 10003, United States

Categories:

AnalysisCommentaryFuturesSP500StocksStrategyTradechat

Tags:

esnq

No responses yet

Leave a Reply