Are We Setting Up for an Opex Bounce?
The monthly options expiration is tomorrow
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Our View
Only the optimist thinks that the ES is going up right now and that’s coming from someone that loves to buy the dips. You don’t read MrTopStep for economics or what stock to buy, you read it because of how the newsletter paints a picture.
Is the picture always perfect? I think not.
Does the newsletter give you a feel for the overall price action? I think it does and so do a lot of other people that follow me.
The one thing that I don’t talk about is the bonds. They are on the lows for the year, while the 10-year yield is within spitting distance of its 52-week high from October (around when the S&P hit its 52-week low). This high for the yields — at 4.335% — is a multi-year high. In fact, it’s the highest level since Nov. 2007.
This has added pressure on borrowing costs, which ‘rattles’ investors and pushes stocks lower. Elsewhere, look at how poorly the Dow Jones Transports have been trading:
DJT Daily chart
Our Lean
Like blaming the 1987 Crash on S&P program trading, there is always a scapegoat for when things go bad.
Yesterday, Bloomberg reported that Goldman Sachs is blaming zero-day options — 0DTE — for causing the selloff in the S&P. Obviously, GS is on the wrong side or they would not be pulling the blame game.
These options are tied to S&P that have maturity of less than 24 hours. The last two days the ES has accelerated to the downside which GS blames on the options. The reason I am writing about this goes back to my discussions with the PitBull that it’s “impossible to know what’s going on all the time.”
That said, the $3.2 billion sell imbalance on Tuesday and the $2.5 billion for sale on yesterday’s close was probably part of the late-day imbalance selling.
Our Lean: I still think you have to sell the big rips, but I also think we could see a larger bounce going into the FRY-day August options expiration. I think this expiration will have a big impact and that the smart money will try and buy near the put wall at ES 4400.
If the futures close firm today I may try a long, but I think if there’s a rip it could be Friday morning and if not late Friday. I know that leaves a lot of room for the ES to go down, but I also think it’s getting very oversold.
Does this mean the decline is over? Not necessarily. However, the lower the ES goes, the higher the risk of it going up increases. That all said, I am looking to buy the early dip if the ES opens lower and sell the rips. It’s all about the option now my friends.
As for levels:
At the Globex low of 4409.50, the ES was down 225 points or 4.85% from the July high. The issue is, support keeps giving way, which creates upside hurdles if and when the buyers finally muster up some strength.
I expect 4475 to 4482 to be resistance, followed by 4493 to 4503.
ES Daily
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Pivot: 4417
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Upside Levels: 4450-53, 4475-83, 4493-4503, 4540-42,
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Downside levels: 4447, 4400-10, 4370
SPY
A deliberate break of the 10-week, 50-day, 61.8% retrace and ~$444 area. Is that an “empty the bus” move ahead of Opex or a downside break?
SPY Daily
The 10-ema has been resistance on the 4-hour chart. If we get a bounce going today or tomorrow, this measure could very well be resistance again, along with the $444 to $445 area, as highlighted below:
SPY 4-hour
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Upside Levels: $444-45, $448, $451 to $451.50
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Downside Levels: $439.50, $437.50
MiM and Daily Recap
ES 15-min
The ES traded up to 4467.50 on Globex, sold off down to 4447.75 at 7:15 am and opened Wednesday’s regular session 4448.25. After the open, the ES traded 4445, rallied up to 4565.50 at 9:50 — the session high — and then pulled back to 4453 at 10:05. After that low, the ES basically traded in a 10-point range in a buy-the-dip fashion until 11:50 when it sold off down to 4442.50. At 12:14, it did a little sideways back-and-fill and sold off down to 4433.25 at 1:13 and then rallied up to 4449.75, dropped down to 4432 and then shot up to 4451.50 at 2:20.
From there, it pulled back down to 4445 at 2:27 and then rallied back above the VWAP up to 4454.50 at 2:31 — the afternoon high. After the high, the ES dropped down to 4421 at 3:19 and bounced up to 4430 at 3:36 as the early imbalance showed $285 million to buy. Over the next 25 minutes the ES traded in a 6- to 8-point range, traded up to 4427 as the 3:50 cash imbalance showed $2.5 billion to sell and dropped down to 4419.75 on the 4:00 cash close. After 4:00, the ES popped up to 4423, but settled at 4419.50 on the 5:00 futures close, down 34 points or 0.76% on the day.
In the end, it was another day of failed rallies and broken hearts for the bulls. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, Globex volume was low at 203k and day session volume was steady at 1.235 million for a grand total of 1.438 million contracts traded.
Technical Edge
SPX
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Upside Levels: 4435, 4450, 4460-64
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Downside Levels: 4400, 4385-88, 4328
NQ
If you asked me two weeks ago about the 14,750 to 14,850, I wouldn’t have given very good odds that we’d see the top of this area tested by mid-August. But with a low of 14,887.50 during Globex, we’ve gotten quite close.
Keep an eye on this admittedly wide zone for the rest of this week. Back above 15K and the 15,100 level is the next focus mark.
NQ Daily
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Upside Levels: 15,000, 15,100, 15,300, 15,450-525
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Downside levels: 14,887, 14,750-850 (and with the 78.6% at 14,781)
QQQ
A deliberate break of the $363.50 to $365 area. Bulls need to regain this zone if they want to make a sustained bounce in the short term. Otherwise, the risk is that this zone becomes resistance.
On the downside, watch yesterday’s low of $362.44 to see if we can form some sort of active pivot around this area — AKA the line in the sand.
Further weakness keeps the $357 to $358.50 area in play.
QQQ Daily
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Upside Levels: $370 to $372, $374.50
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Downside levels: $363.75 to $364.50, $360
TLT
TLT Daily
Bonds remain weak. We were lucky and got that ~$95 buy and quick bounce, but now breaking the recent low and we’re back to the Dec. lows. FWIW, /ZB has already broken the 2022 lows.
A further breakdown could put the $91.85 low in play from October, which would raise the question: Are stocks next?
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. stops below as $42.75 can’t hold. c
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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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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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**CRM — Would still love to see a dip down to the low-$200
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**UNH — watching for the multi-week rotation over $513 to $515. Aggressive buyers can be long in the low $500s vs. a stop near $495d
Go-To Watchlist
Feel free to build your own trades off these relative strength leaders
Relative strength leaders →
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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
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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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