Powell, Fed Decision on Tap.
Low oil reserves have US in a tough spot.
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Our View
Looking back on what unfolded when Covid-19 shut down most of the US economy and the world, I wonder why it had to happen at all. I’m not downplaying the amount of people that died, I just wonder why our government decided to shut down the entire economy.
Demanding the public to stay at home and wear masks was right out of a science fiction movie. Watching most stocks fall while the stay-at-home stocks soared — which we all knew would peak and fall back to earth — left a hole in the stock market that ultimately allowed 10 stocks to dominate and inflict large losses for retirees. It was clearly a time of confusion that continues today.
While the broader market did rally, overall breadth remains weak. I said many times that some stocks would never recover and I was right. As rates and inflation soared and regional banks got pummeled, oil rallied and mortgage rates climbed above 7%. While we are well past the pandemic stage, some parts of the economy have never recovered.
It’s not hard to see that the world has changed since the Covid-19 pandemic and it is also not hard to see how Russia, Saudi Arabia, and Iran have teamed up to squeeze the US by cutting production at a time when US oil reserves are at the lowest in about 40 years. This has put the US at a huge disadvantage should a larger war break out. It’s also put the US in a tough spot, where restocking the reserve will drive prices even higher.
This is not about trying to take away the dollar’s status as the reserve currency, it’s about trying to change the world order where China gets to decide which ships can transit in which seas, while taking over the South China Sea. I know the US has a long history of military mistakes, but we have never tried to take over an entire continent’s resources.
Someone said something about me believing everything I read on Twitter — that is 100% not the case. In fact, I don’t listen to anything I read on social media. I don’t like to have the news on when I’m trading, either. After being around for every stock market crash since 1985 and taking a $10 million hit in the FLASH crash, I make my own decisions, not the word of some know-nothing person on Twitter.
Our Lean
At yesterday’s late-day high, the ES was only down 5 points. It was quite a recovery for a day when they had the ES and NQ on the ropes — and when the ES was down about 40 handles at the session low.
The problem was everyone got too bearish into the decline — they sold into the hole, something we never like to do.
There is a crude oil inventories report at 10:30 a.m., but the bigger event comes this afternoon. That’s with the Fed’s rate decision at 2:00 p.m. While the market is not expecting a rate change, Chair Powell’s presser at 2:30 has the potential to move the market.
Our Lean: You can sell the early rallies and buy the pullbacks or just be patient and buy weakness.
On the upside, a move over 4518 has me watching 4526, 4548-50, 4560, 4572 and 4589.
On the downside, a move below 4482 opens the door down to 4438, 4421, 4389 and 4340.
MiM and Daily Recap
ES 15-min recap
The ES traded down to 4488.50 on Globex and opened Tuesday’s regular session at 4490.50. After the open, the ES traded up to 4496.25 and traded down to 4468 at 11.01, back-and-filled between 4473 to 4467.50 and then broke down to 4462.25 at 12:50. From there, it rallied up to 4476.25 at 1:16, pulled back to 4472.25 and then rallied straight up to 4488 at 2:13, pulled back to the 4483 level, shot up to 4496.75 and then dropped down to the VWAP at 4482.75 at 3:06 as the early imbalance showed $762 million to sell.
After the drop, the ES rallied back up to 4495.25 at 3:46 and traded 4492.50 as the 3:50 cash imbalance showed $600 million to sell and traded 4491 on the 4:00 cash close and settled at 4492 at the 5:00 futures close, down 10.5 points or -0.23%. The NQ settled at 15,383.00, down 42 points or -0.27% on the day.
In the end and despite the drop, the ES proved it was a two-way street. In terms of the ES’s overall tone, it was held hostage to the weakness in the NQ. In terms of the ES’s overall trade, only 171k contracts traded on Globex and 1.197 million traded on the day session for a total of 1.316 million contracts traded.
Technical Edge
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NYSE Breadth: 40% Upside Volume
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Nasdaq Breadth: 43% Upside Volume
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Advance/Decline: 42% Advance
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VIX: ~$14
ES
Nice rally off yesterday’s low, but the ES needs to get above and stay above 4500 for the bulls to have any sustainable traction.
ES Daily
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Upside Levels: 4517-20, 4526, 4548-50, 4560, 4572 and 4589
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Downside levels: 4482, 4438, 4421, 4389 and 4340
CL
Oil taking a breather. Let’s see if support comes into play in the upper-$80s.
CL Daily
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Short-Term Support: $88-$89
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Longer-Term Upside Levels: $92.50, $94, $98
Guest Post
Taylor 3-day Cycle
Author: David D Dube’ (a.k.a. PTGDavid)
Website: https://polaristradinggroup.com/
Prior Session was Cycle Day 3 (CD3): Positive Three-Day Cycle Statistic was fulfilled as price traded above CD1 Low (4494) during RTH. Prior range was 47 handles on 1.369M contracts exchanged.
…Transition from Cycle Day 3 to Cycle Day 1
This leads us into Cycle Day 1 (CD1): Average Decline for CD1 measures 4475 handle. Today is FOMC with Presser at 2:30. Market is back to a more neutral level at the 5-day POC (4490), so we’ll be anticipating relatively quiet two-way trade ahead of today’s decision. As such, scenarios to consider for today’s trading.
Bull Scenario: Price sustains a bid above 4490, initially targets 4505 – 4510 zone.
Bear Scenario: Price sustains an offer below 4490, initially targets 4475 – 4470 zone.
PVA High Edge = 4499 PVA Low Edge = 4473 Prior POC = 4491
*****The 3 Day Cycle has a 91% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.
For more detailed information for both bullish and bearish projected targets, please visit: PTG 3 Day Cycle and/or reference the Cycle Spreadsheet below:
Link to access full Cycle Spreadsheet > > Cycle Day 1 (CD1)
Thanks for reading,
PTGDavid
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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If worried about a larger correction, can sell/trim north of $150 and look to re-establish lower (if we get it).
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XOM — Long from the monthly-up area at $108.50 — Trimmed ¼ at $112.50+ and ¼ at $115+. Now we have another ¼ peeled off at ~$118. If we see ~$120, can consider a final exit or hold for a longer-term swing. Up to you.
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Break-even or better stops
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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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