Are Rates Going Higher or Not? 

Bulls AND bears needed this 3-day pullback. 

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Apologies on this morning’s delay. We had a Twitter hack this morning that had to be dealt with.

Our View

Yesterday, Fed chairman Powell spoke at 10:00 am ET and continued to speak through the morning. As we are already in a pullback stage, it resulted in a choppy first half of the session.

Powell said he expects that interest rates will need to rise in an effort to lower US growth and contain price pressures.

Are Powell & Co. simply jawboning?

Just this week, we wrote about how the market is pricing in one more hike in July (up to a range of 5.25% to 5.50%) and it’s decidedly mixed after that. By December, the market is currently pricing in an 85% chance that rates at that range or lower.

Our Lean — So Far, So Good on the Pullback

I said this would be a down week and so far so good. The ES is riding a three-day losing streak and bulls are trying to avoid making it a four-day streak today.

The last time we had a stretch of 3+ down days? May 1st through May 4th, when the ES fell in four straight sessions, coughing up 144 handles or 3.4%. Since then, it’s been in the bulls’ control.

The ES is down 10-15 points this morning and was heading down to my 4384 level this morning, although buyers stepped in a bit earlier at 4393. We’ll see if it gets there. The PitBull asked me where I thought the next big area was and I told him the 4350 level.

Our Lean: We can’t rule out a bounce, but after a 400 to 500 point rally and Powell indicating the rake hikes are not over, we still think we are in a “sell the rallies mode.” Let’s see how the bulls handle 4400, as it’s a key area on the charts.

Lower could get us 4383, then 4350.

MiM and Daily Recap

The ES traded down to 4418.50 on Globex and traded 4422 on Wednesday’s 9:30 futures open. After the open, the ES sold off down to 4404 at 10:09, rallied up to 4418.50 just below the VWAP, pulled back to the 4411 area and then dropped down to a new low at 4403.50 at 10:51. The ES rallied back up to 4415.75, sold off down to a higher low at 4404.25 and then rallied up to 4422.75 at 12:18 before slowly dropping back down to the 4408.50 level at 1:01. From there, it back-and-filled under the VWAP for the next 45 minutes, then blasted up to 4430.75 at 2:35.

It traded back down to 4407.25 at 3:39 as the early imbalance showed $1 billion to buy, then traded 4415 as the 3:50 cash imbalance showed $3.1 billion to buy and sold back off down to 4406.24 at 3:59 and traded 4411 on the 4:00 cash close. After 4:00, the ES settled at 4410 on the 5:00 futures close, down 25.50 points or 0.58% on the day.

In the end, the ES did exactly like I said it would in the Lean; sell the rallies. In terms of the ES’s overall tone, it was a choppy session. In terms of the ES’s overall trade, it was steady but low with 1.39 million futures traded.

Technical Edge

Two things to note.

First, the S&P and Nasdaq sit at key junctures. Not life or death levels, but sitting at roughly the 50% retracement and 10-day moving averages, active bulls need to defend this area to keep the trend intact.

Failure to do so does not mark the end of the bull run, but it could give bears a bit more life in the short term.

Two, for those that trade our individual stocks names, we are (hopefully) positioned well with two longs and two shorts, although both sides have been volatile. Keep your size right and we sift through the volatility a bit. I will likely give our trades the opening hour to set their ranges before considering a stop-out (unless the losses turn violent).

Let’s see how it shapes up today.

S&P 500 — ES (September Contracts)

Still looking for that 50% to 61.8% retrace zone and the 10-day ema as a dip-buy spot. Seems so simple, but it’s a test in patience.

SPX

Do we get a lower open on the 10-ema and a quick reclaim of Wednesday’s low? If so, that could set us up for a nice bounce and a conclusion of the current dip.

SPY

NQ

If support does not hold in this area — the 50% retrace and the 10-day ema — then we could be looking at a dip into the 61.8% retrace near 14,830, which is also into that prior resistance zone.

QQQ

Need to see this $360 area hold, otherwise, the $355 to $357.50 area could be in play.

On the upside, let’s see if we can regain $365.

Open Positions

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

Go-To Watchlist

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

Relative strength leaders → (List is growing long!)

Relative weakness leaders →

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!