CPI Report Doesn’t Disappoint but Can Bulls Take Control?
CPI results were in-line or below expectations
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Our View
I don’t think people read the Opening Print because they don’t understand what’s going on. This newsletter has never been about being the smartest; it’s about applying street smarts.
I am not saying the markets won’t shake off the current sell off — eventually it will — but I think no matter how far it rallies it’s all part of a big bear market dead-cat bounce. That doesn’t mean the ES can’t trade up to 4900, but as the news piles up and the possibility of war continues, the index markets — not just in the US but all over the world — will be susceptible to further down drafts.
And if Putin uses a battlefield nuke in Ukraine, the Dow will drop 5,000 points. I know this may seem like a scare tactic, but there are a lot of loose cannons floating around and should one go off, I think it will be followed by more. Chaos tends to follow chaos.
At the end of the day, we all need to live our lives but we also should be preparing in case something does. What does that mean? That ones on you!
Long-time readers know that I’m a bull at heart. As I have always said, the S&P can make good news out of bad and can shake off a few headwinds at a time. However, let’s not pretend there aren’t concerns out there.
Our Lean
The ES has now sold off 156 points from its July 27th high and has been down 6 days out of the first 7 sessions of August. Today is the day you are supposed to look for a low the day before the FRY-day options expiration. More than that though, we are looking for one of the PitBull’s best rules — the Thursday/Friday low the week before the monthly opex.
Of course, the monthly CPI report due up at 8:30 a.m. this morning throws a bit of a curveball into the mix. So far, the reaction is mixed.
Here’s something else to consider. While the ES is down 6 out of the first 7 sessions of August, it’s not exactly falling apart. It’s down 156 points from its high and down 143.50 points from the August high. So on average we’ve lost 20 handles a day. The ES is making new lows, but not really making traction to the downside.
Our Lean: I think we could see a rally / up day, but until that rally holds I think it’s best to sell the 40 to 60 point rallies. With yesterday’s low at 4478.25, 4428 would be 50 points and 4538 would be 60 points. The levels we are looking at are as follows:
If we clear the 4538 level, the 4550 to 4560 zone is in play and has been stiff resistance. Bulls need to regain this zone before they can start discussing a return to the highs. Above that and I have 4575 and 4590 on watch.
On the downside, I’m still watching 4493 to 4503, then 4480-82 and ~4470.
MiM and Daily Recap
The ES traded up to 4536.25 on Globex early Wednesday morning and opened the regular session at 4519. After the open, the ES traded 4521.50, made a double bottom at 4509.25, traded up to a lower high at 4517 and sold off down to 4478.25 at 11:56. From there, it slowly traded back up to 4495.25 at 12:51, basically doing exactly what we said it would do. After a small dip, the ES rallied up to 4504.50 at 12:22.
The ES did a little back-and-fill just under the VWAP and at 2:33, it traded up to 4518, 39.75 points off the low and then sold all the way off down to the 4486.75 level as the 3:50 cash imbalance showed $3.9 billion to sell, traded down to 4483 at 3:58 and traded 4486.25 on the 4:00 cash close and settled at 4493.25, down 25.25 or 0.64% on the day.
In the end, the patterns remain the same: Rally late in the day, up-tick on Globex and sell off after the regular session open and make a low in the 11:00 to 12:00 time frame…. In terms of the ES’s overall tone, it remains weak. In terms of the ES’s overall trade, volume was HIGH with 186k ES trading on Globex and 1.39 million on the day session for a grand total of 1.58 million contracts traded.
Technical Edge
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NYSE Breadth: 36.5% Upside Volume
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Advance/Decline: 44% Advance
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VIX: ~$15.75
The CPI report is going to drive a bulk of the early action today — and maybe all of the action. We have had a very controlled pullback thus far and despite falling in 6 of the first 7 sessions in August, it’s been a very mild correction from a percentage standpoint.
That’s as the S&P has suffered a peak-to-trough correction of just 3.15% so far.
If the CPI report dials up the selling pressure, we already know where to look for support (we’ll go over it again below). If it creates a bullish reaction, let’s see if it has the ability to “stick” the move and clear resistance. If it ends up being another rally to sell, then this correction is not likely over.
SPY
#KISS
Either look for a deeper test of the ~$442 to $443 area on the downside or a push to the $451 to $451.50 area on the upside.
A close back above the 10-day and 21-day moving averages (and thus $451.50) could open the door to $453, then $455.50 (gap fill).
SPY Daily
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Upside Levels: $451 to $451.50, $453, $455.50
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Downside Levels: ~$445, $442 to $443.50
SPX
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Upside Levels: 4505, 4520, 4535, 4550, 4567
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Downside Levels: 4464, 4450-55, 4425-30, 4400
S&P 500 — ES Futures
I want to avoid the short-term, intraday chart with today’s pre-market events on tap.
A bullish reaction puts ~4540 to test, then the much bigger zone at 4550-60. On the downside, a break below the two-day low thrusts 4570 into play.
ES Daily
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Key support: 4493-4503 (but wavering)
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Upside Levels: 4540-42, 4550-60, 4575, 4590-92
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Downside levels: 4480-82, 4470, 4450-60
NQ
We have been making a living in the 4-hour and 1-hour charts of the NQ for a month now, but like the ES, I want to zoom out a bit and use the daily.
So far, we have a pretty clean “ABC” correction down to the 50-day moving average. If this recent low can hold (at 15,146.50) then bulls will need to see how a test of the 15,450 to 15,525 area is handled.
If the low doesn’t hold, we could see a larger correction down to the 14,750 to 14,850 area. I’m bullish but also of the opinion that a larger shake-out would be healthy over the next month or two.
NQ Daily
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Upside Levels: 15,350, 15,425-450, 15,525-550, 15,610-625
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Downside levels: 15,150, 15,000, 14,750-850 (admittedly a wide range)
QQQ
QQQ Daily
We had a nice initial reaction off the $369 level on Tuesday, but then more weakness on Friday. If we bounce on the CPI number, longs should consider trimming at the 2-day high near $372.50.
Above the 10-day puts the $375 to $375.50 zone in play to exit more/the rest.
If $367 to $368 doesn’t hold (which would be pretty bearish given the initial CPI reaction is higher), then the $364 zone could be in play.
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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JPM — Many are long from $143-145. This is a longer term swing. 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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Added back about ⅓ of our position around $45.50. Keep in mind, there could be room down to the 50-day moving average.
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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+, Trimmed the add portion above $159 (a high of $161.19 on 8/7)
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Break-even stop, down to ¼ position or less at $162.50 or any high over Wednesday’s high of $162.10
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XOM — long from the monthly-up area at $108.50 — First ¼ or ⅓ trim is ~$112.50. Stops at $104.
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TLT — long from $95.63 (daily-up) — Trimmed ~½ at $97+. Looking for $97.50+ for next ¼ trim or full exit. Traders can also fish for the ~$98 gap fill
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Break-even stop
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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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LLY, CAH
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Energy stocks — VLO, SLB, EOG
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AI stocks — NVDA, ADBE, SMCI
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Mega cap tech — META, GOOGL, AMZN
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Select retail — ELF, LULU, COST
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Homebuilders ITB — TOL, KBH, DHI
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BRK.B (new all-time highs)
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CAT
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Cruise stocks — RCL, CCL
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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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