Summer Trading at Its Finest
Seasonality stats for August start are not great
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Our View
You can tell we’re in the thick of summer. The ES opened at 4611.50, rallied to resistance, then trended lower all day until the final 10 minutes of the session where it ripped 17 handles into the close.
That’s summer trading “at its finest.”
The ES was contained to a ~21 points range for the entire session, then it trades almost the entirety of that range in one big 10-minute push. Just a few months ago, it wouldn’t have been odd for us to trade 20 points in a 30 to 60 minute stretch — and do so multiple times a day. Now it takes an entire session.
I will reiterate the two points I made in yesterday’s Lean — 1. being the fact that we’re in an uptrend, but also need some consolidation or a pullback and 2. being the fact that small caps and the Dow have been (and can keep) outperforming.
Speaking on point No. 2, we saw this yesterday as the S&P and Nasdaq were up just 0.15% and 0.21%, while the Dow was up a little more at 0.30%, but the Russell put together a nice 1.09% pop. It’s now on the verge of new 52-week highs.
We’ll get into the seasonality stats here in a minute, but let’s see how this week shapes up with tech earnings still on the docket.
Our Lean
The stock market has been incredibly strong so far this year, with the SPX up about 19.5%. With July in the books, we can say that it officially climbed 138.60 points or 3.1% and hit its highest level since March 2022.
At its July high, the index was less than 5% off its all-time high, while it has now increased its monthly win streak to five straight months, up 21% in that stretch.
All of this to say that, it wouldn’t be the worst thing in the world to see some sort of consolidation or pullback — especially in August and September, two seasonally weak months. That could help set up a larger rally in the seasonally stronger fourth quarter, but we’ll have to see how that plays out.
According to the Stock Trader’s Almanac, “the first trading days of each month combined have produced an outsized share of the market’s overall gains. However, the first trading day of August does not contribute to this phenomenon ranking worst among other First Trading Days in the 2023 Almanac.”
Further, they add, “in the upcoming 2024 edition of the Almanac August’s first trading day is second worst (December is worst). In the past 24 years DJIA has risen just 32.0% (up 8, down 17) of the time on the first trading day of August.”
Our Lean: Coming into the day under pressure, I want to be a dip-buyer if they open lower. I’m especially keeping an eye on the 4580 to 4590 area. That said, I don’t think we go straight up, either. Today has the potential to be a lot like yesterday: i.e. make an initial move and then stall.
If we regain 4608, see how the ES handles 4615 to 4620. For now, it’s resistance and I would likely look to sell the first rally to this area.
MiM and Daily Recap
The ES traded up to 4618.75 and opened Monday’s regular session at 4611.50. It made a quick rally up to 4619.25 — two ticks above the Globex high — then rolled over down to 4601.75 just before 10:00. From there, it rallied up to a lower high of 4616 at 11:10, dipped back to a higher low and double-bottom at 4604 at 11:50, then fizzled out on a ~6 point rally at 12:30.
That set up a dip to new session lows when the ES traded 4599.50 at 1:00, popped to 4609.25 at 1:40, fell to 4602.25 at 2:20 and traded 4609.25 again at 2:55. That set up one more drop to new session lows when the ES traded 4597.75 at 3:45, then traded 4599.25 as the 3:50 cash imbalance showed $707 million for sale. The ES traded up to 4616.50 and traded 4616 at 4:00, up ~17 points in 10 minutes. After 4:00, the ES traded up to 4618.50 and settled at 4617.25 at the 5:00 futures close, up 8 points or 0.17%.
In the end, the ES made an early high and trended lower all session long until the close. In terms of the ES’s overall tone, it wasn’t weak but it lacked buyers while small caps roared ahead. In terms of the ES’s overall trade, volume was on the lower side at 1.23 million contracts.
Technical Edge
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NYSE Breadth: 76% Upside Volume
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Advance/Decline: 70% Advance
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VIX: ~$14
Despite the upside breadth shown above — and the Nasdaq breadth was 80% upside volume — the indices finished about flat on the day thanks to a late-day pop.
SPY
Struggled with Friday’s high, even with the late-day rally. Now we have to keep an eye on the $457.70 to $458 area on the upside, and the $456 area on the downside.
If we break yesterday’s $456.05 low, see if it’s quickly reclaimed to give us an upside reversal setup or if it breaks and acts as resistance. If the latter, that sets up some potential for more weakness into the $454s.
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Pivot: $456
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Upside Levels: $457.50 to $458, $459.40, $460.35+
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Downside Levels: $455, $453, $451.50
S&P 500 — ES Futures
SPX
Similar setup to Monday’s chart, but now with a 1-hour look:
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Upside Levels: 4590-94, 4605-10, 4625-30
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Downside Levels: 4570-73, 4560-65, 4550-53, 4537-42, 4528.50
S&P 500 — ES Futures
While we go intraday on the SPY and SPX, let’s look at the daily chart here. Not sure if it will set up this way, but a dip down to 4580 could be attractive for active traders. That’s the 10-day moving average and the 61.8% retracement of the recent rally.
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Upside Levels: 4625, 4634, 4646-50
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Downside levels: 4595, 4580, 4571, 4553-58
NQ
15,800 held as support multiple times throughout Monday’s session, but it’s cracking during Globex. Now we may see how the NQ handles the 15,715 area.
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Upside Levels: 15,800, 15,905-15, 15,940, 16,000, 16,030-40
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Downside levels: 15,700-25, 15,660, 15,600, 15,520-550
QQQ
Three-day resistance near $384 to $385 is clear. Trading below yesterday’s low of $382.24 in the pre-market now and bulls will need to see if that mark is resistance or if it’s reclaimed.
If it’s reclaimed and breadth is strong, longs can try for a bullish reversal. If it’s resistance, we may see some weakness down into the $380 area.
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Pivot: $382.25
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Upside levels: $384-385
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Downside levels: $377 to $377.50
XOM
$100 continues to hold for XOM and after a strong finish to July, watching for a monthly-up rotation over $108.50. I’d like to see a daily close over this level, which could help set up a push into the $112.50 to $114.50 area, then potentially up toward $120.
On the downside, XOM needs to hold $100.
WMT
Traders may consider a half-position on a test and hold of the $158 area + 10-day ema. Those who are still long WMT might consider adding back a portion of the position in this area. Note: If that doesn’t fit your style, don’t do it!
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, TLT and YM.
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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+
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Should have us down to a ⅓ position. I think we may be able to get $53+ out of this.
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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.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52
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Adding back what we trimmed if we see $45 to $46
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WMT — went weekly-up from this week’s play — Trimmed above $157.55 and then $158. Down to ½ position with trim at $160+
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Break-even stop, down to ¼ position or less at $162.50
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Look for reset trade back down to ~$158!
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CRM — I’m long CRM from $227.50. Hard stop at $221.50. Look to trim near $230, then $232.50. If we regain our entry price, can also consider a trim there as it would be a “kick save” on the (so far) failed setup.
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!)
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Growth stocks ARKK — DKNG, DOCN, UPST, SHOP
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LLY, CAH
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Energy: EOG, SLB, VLO, XOM
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AI stocks — NVDA, AMD, AVGO, ADBE, SMCI
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Mega cap tech — MSFT, AAPL, META, CRM
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Select retail — CMG, ELF, LULU, COST
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Homebuilders ITB — TOL, KBH, DHI
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BRK.B
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ABEV, DXCM
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Cruise stocks — RCL, CCL, NCLH
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DAL, DT, AMAT
Relative weakness leaders →
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DIS → new 52-week lows
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CF, MOS
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PFE (all vaccine gains now gone)
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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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