Algos Go Crazy on Powell Headlines. Now What?
Like NVDA did, CRM has quite the setup.
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Our View
July was a good month, but I’ll be happy when it’s over. So far for the month, the S&P 500 index (SPX) is up 116 points or 2.6% and the Nasdaq is up 336 or 2.45%. The Dowis up 1,112 points or 3.23%, while the Russell 2000 is up 4.85%.
While the S&P and Nasdaq haven’t exactly been a disappointment, it’s clear there’s been a rotation into the laggards — AKA, the Dow and the Russell.
After the futures sold off early yesterday, I had a feeling the markets were going to rally and I got out of my short ES positions. The machines did exactly what we noted in the “Technical Edge” section — they ran the edges of the range and reversed it.
We wrote: “We already know the 25 basis point increase will come at 2:00 pm. The real wildcard is Powell at 2:30. That’s when they love to run the edges of the range, knock out the stops, then reverse the tape.”
Our Lean
I think everyone was expecting the ES to sell off yesterday and it did, but the selling dried up and the ES rallied. If you follow the patterns, it’s been a buy-the-dips market and that’s what we are going to be doing today.
According to Rich Miller from @HandelStats, today’s GDP number has had the S&P up 8, down 7, and 1 session unchanged out of the last 16 occasions. That in itself — with an 8-7-1 record — isn’t that impressive, but the down days are only down fractionally when the upside net changes are higher.
If we zoom out a bit, Jeff Hirsch at Stock Trader’s Almanac says that the first 8 or 9 days of August tend to be weaker in pre-election years.
He notes that, “First eight or nine trading days of August have exhibited weakness while mid-month has been better. This pattern holds in pre-election years with greater magnitude (dashed lines). Note the bullish cluster from August 15 through 17. This strength is visible above on trading days 11, 12 and 13. The end of August tends to be softer when traders evacuate Wall Street for a summer finale.”
As for today, we’re still looking at the buy-the-dip setups.
Our Lean: I want to buy the dips, but I don’t want to chase. As of 8:20 a.m. ET, the ES is up 32 handles and the NQ is up over 200 points or 1.4%. If the SPX opens near 4600, traders can try to fade the open, but I’d rather just be patient and wait to buy the 15-20 point dips. I don’t know if it will happen, but if the ES pulls back to the 4600 to 4610 area, I want to be a buyer in that zone. Remember to use stops.
MiM and Daily Recap
The ES traded down to 4583.75 on Globex and opened Wednesday’s regular session at 4585.25. After the open, the ES chopped its was up to the 4592 level at 9:45, sold off down to 4580.50 at 11:04, rallied up to 4591.75 at 12:23 — just missing a new high — sold back down to a 4580.50 “double bottom” at 1:02. At that point, total day session volume was low at 435k contracts. From there, the ES sold off down to 4577.75 at 2:00, did some stutter-step back-and-fill, traded up to 4590.50 at 2:15 and had one last drop down to 4080 at 2:27 just before the Fed Chairman Powell headlines started to hit the tape.
The futures rallied up to 4610.75 — a new 2023 high — at 2:43 and sold off down to 4576.75 at 3:09. After the drop, the ES ripped 21 points up to 4594.75 at 3:45 as the early imbalance showed $203 million to buy and sold back off down to 4585.50 after the final imbalance showed $573 million to sell and traded 4596.25 on the 4:00 cash close. After 4:00, the ES rallied up to 4607.25 after META beat but settled at 4592.25 on the 5:00 cash close, down 12.25 points on the day.
In the end there were three parts to the trading day: What happened on Globex, what happened after the 9:30 ET open and what happened after Jerome Powell started talking. In terms of the ES’s overall tone, both the ES and NQ went lower into the announcement and you could see they were exhausted on the downside. In terms of the ES’s overall trade, the volume was low until the Fed raised rates: 197k ES traded on Globex and 1.116 million traded on the day session for a total of 1.31 million contracts traded.
Technical Edge
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NYSE Breadth: 66% Upside Volume
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Advance/Decline: 65% Advance
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VIX: ~$13
Yesterday’s a great example of, either trade the environment you’re in or wait until the environment suits you.
We went into yesterday knowing very well that they could and likely would run the edges of the range and that’s exactly what the machines did. For all the volatility — a 30 point rip, then a 35 point plunge — the SPX ended the day unchanged, down 0.71% or 0.02%.
So either think and trade like an algo on those days or don’t trade those days and wait for setups that better suit your trading style. It’s as simple as that.
SPY
The S&P has been churning below resistance all week, but we’re finally getting a big upside pop this morning.
I will include an SPX chart as well, as the SPX is set to gap into that big ~4600 level. I want to see if they “sell the open” as a retest of prior resistance would be an attractive entry.
On the upside, let’s see if the SPY can push that upside extension level near $459.50 to $460. On a dip, we really want to see prior resistance between $456.50 and $457 hold as support.
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Upside Levels: $459.50 to $460, $461.50
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Downside Levels: $456.50 to $457
S&P 500 — ES Futures
SPX
If we open at or near 4600, active traders are likely thinking “fade,” even if it’s just for a few points. If it really comes in, I’d think the 4575 to 4582 area would be decent support for a bounce.
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Upside Levels: 4595-4600, 4610, 4629
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Downside Levels: 4575-82, 4567
S&P 500 — ES Futures
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Upside Levels: 4633, 4641, 4648-50
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Downside levels: 4620, 4605-10
QQQ
Set to open near the 61.8% near $383, let’s see if ~$385 is on the table today. If we fade, bulls need to see the $380-ish area hold as support. That was multi-day resistance and a key pivot over the last two weeks.
Over $385 and we could be setting up for new YTD highs.
NQ
It took until the overnight session, but we’re getting the move we were looking for into the 15,840 area (the 61.8). Can we get ~15,940, then 16,000?
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Pivot: 15,840
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Upside Levels: 15,940, 16,000, 16,062
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Downside Levels: ~15,790, 15,730-740, 15,515
CRM
CRM did not go daily-up yesterday. Instead, it stalled right at the $227.50 trigger and closed slightly lower on the day. I’m watching that level again today.
If CRM clears this mark, it regains its 10-day ema and clears three day’s worth of highs. That opens the door to the $230.67 to $232.50 area as the first upside target area.
$222 to $222.50 is a reasonable stop-loss.
CVNA
Carvana is highly speculative. It’s a short-squeeze, momentum trading name. It’s not for everyone and even those it’s for, it’s speculative only. If we open with yesterday’s range and then go daily-up over $45.60, it may be worth a shot.
Could it get all the way to $50+ ? Under the right conditions, yes. If it breaks $42.50, I am not interested in at all.
For those fluent with options, the premiums will be jacked, but it may be the best way to play something as speculative as this as max risk = price paid.
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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HSY — Longer-term swing. Want to see this one hold $236-37. “Minor” ~⅕ trim was at $237.50 to $239. Earnings on tap 7/27
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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.
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$103+ trimmed for those long from $101.42-ish. Looking for $105 to $105.50+ for next trim
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DIA — long from ~$346.75. ¼ trim near $350, another ⅓ trim at $351.50. Down to 40% position at $354+. Down to ⅓ at $355
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I would exit the rest/get down to runners on anything near or over yesterday’s $356.28 high.
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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, down to runners at 35,600 (+700) — Congrats!
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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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NVDA — Long from daily-up over $451, first trim at $460. Second trim spot is $464-465, then $470. Break-even stop.
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If still long, $465+ is the next trim, then $470+
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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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Growth stocks ARKK — DKNG, DOCN, UPST, SHOP
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LLY, CAH
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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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