Breaking a Cardinal Trading Rule | Retail Earnings on Deck

A tight range remains in the S&P.

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Our View

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Regarding the market, we have a lot of retail earnings this week, while also sporting a decent pre-market pop in the market. It’s also worthy pointing out that the VIX is higher this morning as well.

Our Lean

I broke a cardinal trading rule on Friday, thinking the ES could keep going up after it already rallied. I was also overlooking the weakness in the YM, which had been down 5 sessions in a row, falling over 500 points, and down in 9 of the prior 10 sessions, with a 1200 point peak-to-trough decline.

While I still think the ES will eventually take out 4200, I also think it’s best to continue to trade the current range with a bias of buying weakness. This Friday is the May monthly options expiration and I think it will be pivotal.

Our Lean: Buy the early weakness and sell the rips. The levels I am looking at on the downside are 4110, 4090 and 4073-75. On the upside, I’m watching 4150-4155, 4168, 4175-4180. Remember, the ES tends to rally early in the day and early in the week in a bear market.

MiM and Daily Recap

The ES traded up to 4164.50 on Globex and traded 4155.75 on Friday’s regular session open. The ES printed 4158.50 at 9:44 and with the exception of the 5 to 15 point short covering rallies, it sold off all the way down to 4111.75 at 2:02. Basically, the ES and NQ struggled all day.

After the low, the ES back-and-filled in a narrow range, rallied up to 4121.25 at 3:00 and then rallied all the way up to 4133 at 3:47. The ES traded 4131.50 as the 3:50 cash imbalance showed $224 million to sell, dipped to 4129.50 and traded 4138 on the 4:00 cash close. After 4:00, the ES dipped slightly and settled at 4133.75 on the 5:00 futures close, down 5.75 points or 0.14% on the day.

In the end, the VIX told the story and ES and NQ struggled until the late-day bounce. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was on the moderate side at 1.38 million contracts traded.

Technical Edge

We’ve had some decent action out of our two individual stock trades thus far, although this week will likely be a make-or-break situation for them. As for the week, there are three things I want to note.

First, there are a lot of Fed speakers on deck (14 to be exact). So beware of some of the intraday headlines.

Second and third, I want to keep an eye on regional banks (KRE) and the dollar (DXY). When both are working against equities — aka, the KRE is dropping and the DXY is rallying — the S&P has trouble on the long side.

S&P 500 — ES

The upside has been capped by ~4175 and the downside limited to ~4115. We need a break of this area to push the outer edges of the range. Even more recently, notice how the ES has pushed higher or lower, then retreated back to the 4140 to 4150 area by the close.

SPY

SPX

QQQ

Still watching $328-$331 on the upside and now watching ~$323.50 on the downside for support. Big-cap tech is still a massive driver in the market (MSFT, GOOGL, AAPL, etc.)

NQ

On Friday I was “very interested in seeing how it handles a dip back down to the 13,300 area, which is the rising 10-day ema and the prior resistance level.”

It came within 10 points in the afternoon, then gave us a ~90 point bounce. In the pre-market, it’s +130 from that spot. I still think it’s a key are on the downside, while 13,500+ is the upside level to watch.

DXY

The level to hold is $102.40 on the downside. If it does, DXY bulls can remain in control, which is a headwind for equities. Back below this level and S&P bulls may find a bit of a catalyst.

AVGO

Inside week last week, weekly up at $632.70+

Nice little bullish consolidation in AVGO here as it tries to go weekly-up and clear downtrend resistance. If it fires, stops can be at $613 to $615.

$640+ is the first target to trim. Then $645.

GOOGL

I don’t expect it, but a tag of the 10-ema on the 4-hour chart and a gap-fill would be an attractive entry for longs and/or call buyers.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B

Go-To Watchlist

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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!